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By Sandy Chockla, Owner, Expense Reduction Analysts
When working to improve profitability, many businesses focus on increasing sales, but it is important to realize that reducing expenses also has a direct effect on net profit. This example shows that a $4K reduction in expenses can have the same impact to Net Profit as a $40K increase in revenue.
One needs to realize that suppliers are trying to win as much business as they can, at the highest margin that they can, just like any business does. Unfortunately, suppliers can take advantage of your misconceptions and business challenges in order to charge higher prices. For example, many businesses assume that loyalty to a supplier results in the best pricing and service, or they believe that suppliers give similar pricing to similar clients and customers.
Because many businesses struggle with limited resources, it can be impractical to dedicate equal resources to less strategic cost strategies. Therefore, you may not know what savings is possible in those categories. If you want to reduce expenses, you should follow the procurement best practices which will be shared in this blog post.
Sandy Chockla is a franchise owner and Principal Consultant for Expense Reduction Analysts (ERA). ERA has a network of experts in more than 40 overhead expense categories which I leverage to benchmark prices, review supplier agreements, and optimize our client’s purchases or services. This is done without compromising supplier quality or service. If you would like to have a discussion, you can contact Sandy at firstname.lastname@example.org or call direct at 970-232-4860
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By Peter Holtgrieve, Colorado Business Advisors
One morning, while leaving the house for work I noticed that the driver’s side front tire on my car was low and unsafe to drive. So, I turned on the air compressor in the garage and waited for it to fill up with air. I then filled the tire up with the appropriate amount of air and proceeded to work. To my surprise the next morning the tire was once again low on air. I followed the same process and went to work. The following morning while again waiting for the air compressor to fill with air, using Lean principles I analyzed the situation and that evening I put the air compressor on a timer so that I didn’t have to wait the next morning before filling the tire. I improved the process, I made the process more efficient saving myself time. Or had I?
There is a quote by Peter Drucker that says, “Nothing is more useless as doing something efficient which should not be done at all.”
I think that everyone knows what I should have done, figure out why the tire was losing air and get it fixed. It may seem obvious. And yet we do it all the time in business. Instead of spending the time to truly solve the problem we just keep putting a band aid on it. We feel like it takes too much time to find the root cause and develop a solution that will prevent the problem from happening again. How many times did I need to fill the tire before the time would have been longer than just getting the tire fixed in the first place?
Ask employees, they will tell you that one of their biggest issues in their workplace is to continue to deal with the same problems over and over and over again. I could bring up several quotes here, like the definition of insanity, but it comes down to doing what is right not what is easy. We as leaders have to provide those we work with the best opportunity for success and that requires us to not just fix problems but to solve them so that they never come back. Don’t improve a process which shouldn’t be done in the first place.
PBEX, LLC can provide training on root cause analysis and problem solving to provide the means to prevent problems from reoccurring. Contact us today to learn more about lean business management and to schedule your review with a process improvement expert.