While Australia has been pretty lucky during this global financial crisis compared to the rest of the globe, many business owners have stopped to think about how they can save an extra penny, all of which makes them a little more cost conscious.
If this sounds familiar, how would you feel then if I told you that 95 percent of what you do in your business to deliver a product or service is actually considered non-value added, or waste, in the eyes of the customer? Yes that’s right – more than 95 percent.
I’ve spent more than a decade working with various businesses across the globe, helping them to improve on how they do what they do. And every time I look at the processes and activities they go through to deliver a product or service to their customer, it’s the same story. Waste, waste and more waste.
You’re probably thinking this can’t be true, but unfortunately it’s very much the case in almost every industry – government, agriculture, manufacturing, finance, IT, FMCG, healthcare … the list goes on. The only industry in which waste is only around 50 percent is the wine and whiskey industries, and this is because these products sit in a barrel for months or years aging – and we as customers think this is valuable.
Recently having launched my own business working with mainly small businesses, I have discovered that the situation is often even worse in SMBs. Can you imagine if you were able to spend just 5 percent of the time you do now to deliver your product or service? How much cost would that suddenly wipe out?
Well, unfortunately it’s not that simple. Many things you have to do are associated with regulations and safety, for example – the filling out of extra forms as well as the steps and checks it takes to make sure that an activity is safe or compliant – and these are things customers simply don’t find valuable.
But, if you exclude all the things you need to do because of compliance or regulation, you might find you’re left with a huge chunk (often around 70 percent or more) that is pure waste. Things such as photo copying, fixing errors, duplicating effort, waiting, searching for things … the list goes on. This is the stuff the customer would not pay you for.
So next time you are asked to produce or deliver a product or service for a customer, think about every step that you need to do to deliver that product or service, and at each step ask yourself – does this add value to the customer? Would the customer be prepared to pay for this step or would they think it’s unnecessary?
If it is waste, then think about how to get rid of it and suddenly your costs will start falling.