So the economy is in the tank and not coming out anytime soon. What's a business owner to do? For many it might be a knee-jerk reaction to cut costs. That usually means cutting people, and that would be a huge mistake.
It's not your people
Your people are not your problem, and getting rid of them will only make matters worse. There have been a number of high profile layoffs and plant closures in the printing, packaging, paper and allied industries lately. It seems as though I read about one almost every day.
I know that letting people go is a tough decision. I've been there myself. In this economy you need to do whatever it takes to keep your business healthy and weather these tough times. Layoffs, though, should be the last thing that you resort to. Your employees are what make your business work. They are the ones with the intrinsic knowledge of your customers, your processes, and your products, which are even more critical now than they ever were before. If you let them go they're gone for good and you won't be able to tap into that knowledge when business picks up again.
Instead of layoffs, use your people and their combined years of experience and creativity and find new ways to reduce or eliminate waste from your processes. Remember waste? Waste equals downtime, and it's the D-O-W-N-T-I-M-E that is costing you money – not your people.
Basic blocking and tackling
Instead of letting people go, retrain them to root out and eliminate waste from your organization. Go back and reinforce basic problem solving skills and teach people how to see waste in your system so that you can stop throwing cash out the window today. By doing so you can put yourself in a far stronger position than that of your competitors when the economy turns around again.
Go after the Defects, Overproduction, Waiting, Non-utilization of talent, Transportation, Inventory, Motion, and Excessive processing that are costing you time and money. If you've done it before, do it again, and again, and again.
Keep steering toward True North
You need to continue this never ending cycle of waste elimination and cannot give up on your journey toward True North. When you steer toward True North you are doing what you should do, not merely what you can do.
The typical leadership system (i.e., the people who are the leaders in typical American companies) won't sit still long enough to let the roots of Lean take hold. They want instant results to satisfy shareholders (who are really Wall Street brokerage firms, not the average Joe with a few shares), and if these leaders don't see instant results they change course. They've either lost or never had the ability to steer their company on a course toward True North and they abandon Lean. Then they usually end up firing a lot of people.
Don't give up the ship. Keep steering toward True North.
Make only what you sell
Sounds simple, but it's difficult for many companies to embrace this basic Lean principle. Instead, many companies are still clinging to the "If we print it they will buy it" business model, and now these companies are sitting on piles of inventories, tying up valuable cash that is probably costing them a few extra dollars to finance while they wait to get paid by their customers.
If you make only what you sell, then buy only what you need to make what you sell. Keep your cash: Don't hand it over to materials suppliers who would be more than happy to fill your warehouses with their products. And don't buy into the consignment scam, either. You are paying for that supposed "no cost until I use it" inventory. It's sitting in your building. You pay the wages for the fork lift drivers and the warehouse attendants who unload and shuffle this material around your warehouse, a warehouse that you pay for: rent (or mortgage), taxes, heat, electricity, security, insurance, etc. The few pennies you've saved per MSI are eaten up by all of these extra costs.
Reduce batch sizes
Your customer may have given you a six-month purchase order, but that doesn't mean you have to produce six months worth of product. If you do, you're going to be holding a large IOU for a long time.
Your vendor isn't going to wait six months to get paid, is he? Your employees are not going to wait six months to get paid for producing the order, but you have to pay them and the material vendors and the trucking firms and you still have months of finished goods sitting around waiting to be shipped and invoiced.
Once you do ship it, when are you finally going to get paid for it? Thirty days? Sixty? Ninety? You could be sitting on product for months before you ship it and then wait even longer before you finally get paid.
Show me the money
Speaking of getting paid, make sure that you do. Make sure that your invoices are correct and complete and that they get out the door the same day that the product does. Too often companies neglect their invoicing process which inevitably leads to (a) multiple phone calls to the client to collect on the invoice, (b) recreating the invoice, (c) an upset customer who doesn't like getting harassed over an invoice that wasn't correct to begin with, or (d) all of the above.
Make sure your equipment is available and capable
Now is not the time to skimp on maintenance. Your orders may be getting fewer and farther between. When you do get them you want these orders produced as quickly and efficiently as possible and you want to get them out the door and billed. Having equipment that breaks down or that produces defective product just prolongs the time between paying your employees and vendors and getting paid by your customers, and almost always results in lower profit due to higher scrap rates. The longer an order sits in your building the more it's going to cost you.
Talk to your customers. Find out what their real needs are. Chances are they're in some trouble, too. They may not be able to spot the trends that you're seeing and they may be making purchasing decisions based on bad data. Help them to "see" the waste.
The same goes for your vendors. Let them know that you're thinking rationally and are making sound business decisions that will ensure your long term viability so that they won't see you as a potential risk (or worse, as a write off). If you're cutting batch sizes and buying only what you need then let them know this. Don't let them think that they've lost your business to someone else as you may end up on the short end of their customer service stick.
Treat your material like money
I've been in print shops where scrap rates are astronomical and in some where they don't even know what their scrap rates are. If you're in either category you might as well be lighting hundred dollar bills on fire. You've paid good money for your raw materials – make sure you handle them with care. Scrap from poor handling, water damage, broken pallets, edge tears, crushed cores, and a sea of butt rolls is just inexcusable in today's business climate.
Treat your employees like gold
Talk to your employees. They know it's bad out there. They want to know that you have a plan, even if that plan means a little pain for them. If you need to reduce your costs, then get creative before you get crazy. Don't get cheap – cutting out the free coffee may save a few bucks now but it will cost you an enormous amount of respect in the long run.
Go to a four-day work week and stagger people to cover Monday through Friday. Maybe some employees will want the extra day off; it could mean a reduction in child care expenses for them. Maybe some will find other part-time or seasonal work to offset the loss of income and could be called back to full time easily when the economy picks back up. You get to hang on to your most experienced people and you won't have to go through a learning curve with a new hire when things improve.
Stick with the basics
Keep driving waste out of your business and you will control costs. Use your most important assets – your employees – as your allies in this relentless pursuit of waste reduction. Your investment in them will pay off for your business.