lean and your top & bottom lines

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!

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

Why Does Measuring Matter?

© 2015 The Karen Martin Group, Inc. 5

Engage Executives

Create Job Security

Engage Employees

© 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

When Does Money Matter?

ALWAYS

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 SalesExpensesProfit

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

© 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

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

(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

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

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

SNAP DEPT 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)

P/U

AFrame

Power Pole

o st g Up Spag ett ag ae o e a e t p o e e ts

st ated d sta ce a ed du g g Up 3095 tag a o o s t e oo a d a d does ot c ude o g t e a e

g Up e 90 utes

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

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

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

© 2015 The Karen Martin Group, Inc. 19

Why isn’t inventory reduction on your list?

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.

© 2015 The Karen Martin Group, Inc. 21

Annualized freed capacity = 1,150 hrs = 28.8 wks = 0.6 FTEs = $36,937 labor dollars (unburdened)

© 2015 The Karen Martin Group, Inc. 22

Should you calculate financial results for daily kaizen?

The Bottom Line

It’s tough for anyone to take improvement seriously if you

don’t measure and communicate real, tangible results.

© 2015 The Karen Martin Group, Inc. 24

Karen Martin, President 858.677.6799

@karenmartinopex

Blog & newsletter: www.ksmartin.com/subscribe