A common problem for clients at various stages of growth, in any industry, is a decline in profitability. Negative changes in the bottom line are easy for clients to spot, but it’s harder for them to diagnose why change is occurring and take remedial action. A great opportunity for advisors to add substantial value is to not only identify the cause, but go the next step and help clients identify and implement strategies to turn the decline around.

Simple tool, powerful outcome

There’s a simple tool that business advisors can use to dramatically improve the profitability of clients. Called the ‘seven wastes’, it was developed by Toyota as a key concept of the Toyota Production System (TPS), and can apply to any service or product-based organisation. It’s a powerful process to facilitate this tool in a client meeting, have your client come up with three examples from their business of each of the seven wastes below. The client can then put a monetary value next to each example. You would then rate each example either high, medium or low in terms of ease of addressing the waste issue.

What are the seven wastes?

  1. Overproduction – obvious examples of overproduction are producing products with no guarantee of sale and over-servicing customers, but what about less obvious issues such as over-staffing, excess paperwork or over-paying creditors?
  2. Waiting – where do things wait in the organisation? The answer is usually ‘everywhere’. We give the example of the time it takes from getting a job to the time payment lands in your bank account. How many minutes of those hundreds of thousands were you adding value to that process? You will find it’s usually all waste. Some examples could be – waiting for a management decision, staff absenteeism or machine repair.
  3. Transport – don’t just think of freight of goods for this one, it could also include internal and external movement of people, goods and information. For example, factory layout, damage to products during the freight process or even the number of inter-office meetings held versus web conferences.
  4. Inappropriate processing – there are usually loads of examples in organisations of using the wrong machine or person for the job, ‘using a sledge hammer to crack a nut’, from management wanting to make all the decisions to lack of documented systems, to chasing down sales that are never going to close.
  5. Inventory – referring to stored value somewhere in the organisation, inventory could be in the form of work in progress, finished goods or even leaving money on the table when negotiating.
  6. Unnecessary motion – time management and ergonomics are the keys here. It could be in the form of a disorganised office layout, stopping and starting jobs, or even spending too much time emailing when picking up the phone would have been quicker.
  7. Defects – where do mistakes happen in the organisation and what are they costing? This could be due to poor instructions, lack of clear processes, poor specifications, a missed deadline or even the inability to learn from one’s mistakes.

Once you have gone through the waste list with your client, select the three most impactful examples, making sure they are the ones with a combination of being the highest value and easiest to implement. You can then go the next step and set actions, responsibilities and timelines next to each, importantly making sure that you follow up with the client to confirm they are remaining accountable for completing the actions.

The seven wastes is a great process to find out where your client is wasting time, people, resources, energy and money to improve profitability. By looking for issues of high value that are easy to fix initially, they will be able to make a rapid, positive impact.

 

Good luck.