Millions of dollars are being lost by many companies that don’t recognize they have a problem — Does your LBM company have more than $50 million combined sales? Quantified as a ratio of sales, according to Six Sigma case studies, the cost of poor quality, defined as waste, inefficiencies, and defects, can be as low as 5% to as high as 40% of sales. Most companies’ average loss from inefficiencies is about 20% of sales. But that term, “inefficiency defects,” is difficult for most people to comprehend as affecting their company in such stark terms. This article contains some straightforward examples and a solution to uncover these hidden losses; perhaps your company will gain millions of dollars.
To quantify the cost of inefficiency, let us use sales per year for individuals, such as salespeople and technical people like component designers.
Common sales output by groups for an LBM with $100 million in sales per year:
- Designer/technician = $2 million per year
- Salesperson = $5 million per year
Note that each defined sales volume will vary widely based on numerous factors, but let’s use these as a baseline for understanding and comparison. If each group is running at 100% efficiency, that means that it has no loss of time for any delays, errors, or problems, which is an impossibility. Here are typical examples of lost time measured by time per day that TDC finds the most common.
Designer/technician looking for missing or current information, the lag time between projects from stop to start of the next, and work interruptions by salespeople and customers are easily an hour per day, equating to 12.5%. This inefficiency loss is at least $250k per year with just one hour of daily loss. Survey your design group to see how much time they waste, such as answering questions from salespeople about job information.
A salesperson is not performing sales tasks but is instead trying to find critical information within the company to find essential information, such as the ever-changing delivery schedule, a requested quote, product information, or technical details from a designer or technician. Typical lost time on the phone or searching multiple apps on the computer per day is greater than two hours, which is 25% of the day, so 25% of 5 million = $1.25 million in potential gains. The amount of time most salespeople spend finding need-it-right-now information is astounding for most companies. Survey your salespeople to see how much time they waste, such as finding up-to-date information within your company.
Just a very conservative loss of 10% for an LBM with $100 million combined sales is a minimum loss of ten million dollars — With these two examples, it is clear that any LBM with these common issues, which can be verified with honest discussion within these groups, easily has a greater than 10% loss of productivity. At $100 million in sales, this equates to over $10 million in unneeded costs and potential sales. Your group cannot obtain sales if they constantly struggle with the internal constraints of poorly developed processes.
Defaulting to phone calls and interruptions — The sales team is an excellent example of how all departments function. How do you get the information into the sales team’s hands without causing additional work on other people within the organization? The obvious way to reduce these examples of constraints is to develop a practical resource planning (ERP) system. However, most opt for an expensive ERP system as an addition to their existing accounting system, combining multiple vendor apps, or developing their own ERP system through various apps and vendors. The main problem with these systems is that the sales team finds them too cumbersome and relies on old methods of "quick" phone calls that interrupt others’ work within the company. Even after years of use, the default response from management is that they need more training and app development to improve the ERP system. At what point will management understand that no matter how much they invested, they made an error, and it is not working out how they intended?
Companies with recent mergers of differing systems are losing millions more — When different companies merge through acquisitions, the headache of combining differing accounting and ERP systems is simply mind-boggling. The inefficiencies within the whole organization using all the various systems are too numerous to describe, and most see them as self-evident. If you applied the Six Sigma rule to this, how many millions do you think are being wasted and unrealized? Larger corporations can lose millions per day simply because their ERP systems are so time-consuming to deploy to all the various new acquisitions.
Reduce cost and improve sales by millions — Many companies can easily reduce their cost and improve their sales by millions of dollars each year with an easy to deploy, use, and customized ERP system that even the older sales team members will use. This statement merits repeating. Reducing costs and improving sales by millions of dollars can be done with a best-in-class, easy-to-deploy, easy-to-use, and easily customized ERP system. Every department within a company should use an easy-to-use yet extremely powerful ERP system to improve productivity in all areas. For a great example, please see Maintaining Successful Project Management Communications.
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Case Study — Building Material Supply & Truss Manufacturing
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