How to get the most from your process improvements: Target profit directly

We've found that our happiest clients are those that have experienced some sort of growth through increased revenues, cost savings or export development. In short, our value comes from a positive impact on profitability. To capture this value more broadly, we commission an independent analysis of our activities every year to quantify the company's benefits across five main metrics:

• increased or retained sales
• increased exports
• cost savings
• investment effects
• jobs created/retained

The results for 12/13 were positive. Overall, we helped industry generate more than $50M worth of value for their businesses, which is detailed as follows:

• increased or retained sales - $38.3M
• increased exports - $2.0M
• cost savings - $4.0M
• investment effects - $5.7M
• jobs created/retained - 270

A focus on economic recovery
Importantly, we also surveyed our clients across key areas of success, to which 84% of our clients reported that they were more competitive, and separately 84% reported cost savings as a result of our intervention.  Competitiveness depends on much more than having the lowest cost – many of our clients reported improved lead times, improved quality and improved systems.  Some of our work with clients was assisting businesses following flooding, which may not result in increased competitiveness or cost savings – the focus is on recovery.

Additionally, 56% of our clients also reported an increased profit margin - an impressive result, considering the condition of the economy.

Notwithstanding these positive results, more companies reported reduced costs and improved competitiveness than those that improved their profit margin – 84% versus 56%.  What happened to the missing 30%?

It is possible that our clients returned the cost savings to their customers, in the form of reduced prices. While it is a difficult time to pass on price rises, most companies are able to at least maintain existing prices. It is much more likely that companies which have reported cost savings in one area have been able to absorb price rises in another area. This has allowed our clients to be relatively more successful than competitors, who have tried to absorb cost increases across the board. Such companies will be well placed as the general economy improves.

Interestingly, only 35% of our clients reported that they had increased sales, due to the increased competitiveness which resulted from working with QMI Solutions. Again, this might reflect the state of the economy, but it means two thirds of companies are not using their competitiveness to take work from their rivals. While companies who are implementing improvements will benefit when the economy improves, so will rivals. There is definitely an opportunity for our clients to increase the benefits they experience from working with QMI Solutions.

Don’t wait for the tide to turn, plan to succeed
Companies which have implemented cost savings and become more competitive should be proactive in using these advantages. QMI Solutions would like to see 100% of our clients increase their sales and profit margins, and has the tools to achieve this.  Detailed below are three ways this might be achieved by working with QMI Solutions.

Choose to make more profitable products
Every company knows some products are better at contributing to profit than others, they just don’t know which ones. Changes, including process improvements, are likely to have changed the performance of the system and this means old assumptions may give the wrong result. Costing methods produce different answers, some products are strategically important, and pricing methods influence the type of work companies are asked to deliver. These concerns are preventing companies from choosing to make the most profitable products.

However, concepts like Constraint-Based Costing can provide a valuable insight into the true cost and profitability products. Confidence in the foundation then allows the use of Pareto analysis in product portfolio management and product lifecycle management, which in turn allows strategic choices to be made in marketing, pricing, design and management. Companies which understand this process literally choose to make more profitable products.

Build a high velocity organisation
Organisations which have invested in their processes receive a benefit – costs are reduced and they have become more competitive. The particular improvements were usually selected to address pressing issues or capacity constraints, and now that the “fires have been put out”, many companies turn their attention to some other aspect of their business. Managing a company is complex and challenging - there is always something which needs attention.

Some organisations retain focus on their processes. By deliberately creating a high velocity organisation, they build a competitive advantage which is difficult to replicate. A high velocity organisation embodies Lean principles – it understand exactly what it needs to do, can identify unexpected results quickly, solve problems effectively and build this into the corporate memory. This next stage of evolution allows companies to consistently outperform their competitors, increasing sales and profits.

Prepare for growth
Process improvements are often required because the organisation has grown. Methods of working which were suitable at lower levels of activity now cause gridlock, and often the current premises are no longer sufficient. Sometimes equipment capacity is the issue. Nice problems to have, unless they are your problems! Streamlining your processes can provide some breathing space, but eventually the business will need to increase its capacity.

Organisations which grow quickly and successfully do so by applying proven frameworks, appropriate to the current stage and transition (some companies grow successfully without applying frameworks, but by learning hard lessons along the way – this is the path of least reward and highest risk).  Frameworks to apply include organisational models, business systems, stages of practice maturity and employee development.  Often, skilled external advisors are best placed to view your organisation with fresh eyes, and recommend the right approach at the right time.

What do I do next?
Contact us to review your process improvements and directly link these activities to improved profitability.

Manufacturing megatrends that will change your world

Following is an article from GIL Community (the Global Community of Growth, Innovation and Leadership), subscribe to the community at: www.gilcommunity.com to read more articles like this - written by Paul Tate.

A quick snapshot of the companies listed in the Fortune 500 ten years ago is a sobering exercise. Over half of those organizations have now either disappeared off the list, or no longer exist, at least in their original form, notes Frost and Sullivan vice president and Megatrends analyst Richard Sear.

So how do you avoid becoming one of the world’s lost companies over the next ten years?

The most critical role any business leader must perform is to identify and plan a successful path forward for the future of the enterprise. That means identifying and understanding the trends that are going to transform your business in the years ahead.

The problem is that anticipating the future in today’s world, where the speed of change is so rapid and sudden, innovative disruptions are so common, may seem like an impossible task.

There are essentially two approaches to grappling with this difficult task. The first is simply to sit back and allow new technology and business models to converge into your business and then react as best as you can. The second is a proactive stance to understand and embrace change, and therefore be in a position to capture growth opportunities faster and more fully. What’s your risk profile?

Frost and Sullivan’s Sear has identified a series of global megatrends that he believes are set to fundamentally transform the world we live in over the next decade or so -- and which will have a major impact on the future of manufacturing and its growth prospects.

They are:

• The City as a Customer: The emergence of new megacities around the world, especially in Asia and Latin America, linked by highly urbanized corridors of development. These will become the world’s key centers of economic growth, creating new and different markets for manufactured products and creating significant logistics challenges for delivery to customers.
• Social Change: The combination of an aging workforce in many western economies, with the growth of demanding, impatient and tech-savvy Generation Y consumers who expect higher degrees of personalisation in both products and services.
• Technology: The increasing development of virtual worlds, augmented realities, big data, and pervasive robotics will change the way both manufacturing companies and consumer markets operate and develop new ideas.
• Smart: Extensive embedded intelligence in physical assets and products – often call The Internet of Everything – will see a significant shift towards smarter, more connected products with vast supporting networks and real-time applications.
• New Business Models: These fundamental global shifts will require companies to re-assess how they do business, and how they deliver value in the future – resulting in more collaborative operating models with a greater emphasis on delivering ‘Value for Many’ and frugal engineering approaches.
• Infrastructure: How will you be affected by a greater focus on how the world harnesses its energy resources, and creates new, more sustainable and lower cost ways to store and ultilize future energy?
• Beyond BRIC: The rapid rise in new markets and fast-growing emerging economies around the world in the decade ahead will create new markets, new global competitors, and new manufacturing opportunities that will force companies to re-asses their global production strategies and footprints. 

Where will the hot spots be and how will they change your future plans?

Manufacturing seems destined to play a key role in both reshaping existing industries and enabling others to emerge as these megatrends push the world beyond the end of this decade.

The companies that make the effort to understand and plan effectively for this future, change the way they make decisions, redefine the value they create, and restructure how they deliver that value, are likely to be the ones that will survive and thrive.

So how are you now seeking to better understand the disruptive long-term trends that could determine the future of your business?

Are you adopting internal strategies that will make your enterprise more adaptable to the fundamental economic, social, technological and industrial changes ahead?

How to get "Better Through Lean" in only 10 minutes

Discover how advanced your company is in becoming a Lean organisation by taking our 10 minute “Better Through Lean™” assessment.

The core idea of Lean Manufacturing is to maximise customer value while minimising waste. Simply, Getting better through Lean means creating more value for customers with fewer resources.

A Lean organisation understands customer value and focuses its key processes to continuously increase it. The ultimate goal is to provide perfect value to the customer through a perfect value creation process that has zero waste.

To accomplish this, Lean thinking changes the focus of management from optimising separate technologies, assets, and vertical departments to optimising the flow of products and services through entire value streams that flow horizontally across technologies, assets, and departments to customers.

To begin your Better Through Lean assessment, go to: www.betterthroughlean.com

Energy efficiency - the new challenge for industry

Energy efficiency, in particular electricity usage, is a new challenge for industry with impending price rises likely. How do you know if your energy efficiency program (if you have one) is working for you and how to avoid the five common misconceptions about energy efficiency.

Most energy consultants focus on technology solutions such as LED lighting, more efficient air compressors, thermal insulation, and many others. Each of these can certainly be justified, but each requires capital investment, and most do not impact on the major consumer – your production processes.

QMI Solutions has been assisting companies reduce the cost of their electricity and introduce energy efficiency programs, achieving excellent results with minimal capital investment. This is because the approach of QMI Solutions is different. As process experts, we focus on the major consumers of electricity – your production processes. Understanding where your energy is going, and how much of it is productive can identify previously unrealised opportunities. Often the solutions are simple, requiring no capital investment and only a change in practice. A typical QMI Solutions project results in improved energy efficiency including cost savings of 10% through reduced energy consumption, and 10% through reduced peak usage charges.

Many businesses have already taken action. Some have changed their lighting, upgraded their air compressors, and changed to other energy sources. However, there is still much low-hanging fruit, but there are common misconceptions which prevent businesses from further reducing the cost of their electricity. From our practical experience, there are some common misconceptions of which industry should be wary.

Five common energy efficiency misconceptions preventing business from reducing the cost of their electricity:

1. My electricity is cheap, the price on my bill is only a few cents per kilowatt hour
2. I have already changed my lighting and upgraded my compressor, there is nothing more I can do
3. Power Factor Correction will reduce my electricity bill
4. A vendor says this small box will reduce my electricity bill
5. The peak usage charge makes my electricity more expensive for the rest of the month

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The Transferral of Lean from Manufacturing to Construction: a case study

Lean Construction worked for CivilPlus resulting in a transformation at Townsville-based business that was proof that Lean Manufacturing principles do not just help manufacturers – they can assist construction companies, too.

After completing a range of Lean Manufacturing programs, the civil construction company went on to successfully introduce 5S housekeeping in its workshops and onsite trailers.

Even before it was introduced to Lean Manufacturing (or Lean Construction) principles, CivilPlus was close to world class standard.

Director Scott Ironside and co-director Richard Lamb, both of whom are Townsville born and bred, established CivilPlus in 2004. “We have gone from three employees to 45 in nine years,” Ironside said. The company operates from two 400m2 workshops in the Townsville suburb of Garbutt and has six trailers that go to project sites.

CivilPlus provides civil and marine infrastructure services, such as pipeline installation; pavement, dam and bridge works; and marine construction, including pontoons and wharfs. The company’s projects are valued from $20,000 to $10 million, and most clients are within a 400km radius of Townsville.

CivilPlus was first introduced to Lean Manufacturing through the Queensland Nickel Supply Chain Project, which was developed in 2010 to help Yabulu Refinery operator Queensland Nickel Pty Ltd increase its supply chain’s responsiveness and capabilities.

Twenty manufacturers, including CivilPlus, participated in various stages of the project, which identified the main inhibitors to supply chain performance and how to overcome them.

“We landed a couple of big jobs while we took part in the supply chain project, so it was worthwhile working with QMI Solutions,” Ironside said. The company had just relocated its premises, so it was a good opportunity to make improvements.

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