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.