Did you know that more than 30% of your employee’s time is dedicated to rework or solve errors, that is to produce hidden costs? Yes, the worst thing is that many of these are hidden costs are not even visible in the financial statements.
Imagine if that 30% time could be used to produce, better serve the customer, train employees or simply reduce overtime.
Related reading: 8 hidden wastes that impact small business profit
Normally you don’t fully analyze how we are using our time, much less how our employees use theirs. The costs of committing errors in the processes are usually represented by the scrap or the products in return in the factories and manufacturing companies, but there are many costs and times involved that are not normally accounted for, much less in Service. In sales, finance and customer service there are many costs that could be reduced, and make the use of staff time more efficient. These costs reduce our ability to serve the client, and above all, reduce our profitability. The costs can be internal, that is, we identify them before they reach the client; external, the client discovers them; of inspection, we spent on controls and preventives, used to avoid other costs. Examples of these costs are:
Internal costs
- Time spent attending a complaint
- Manager’s time to decide how to handle the complaint
- Time dedicated to provide the service again
- Time and materials dedicated to sending credits and rebills
- Contact the supplier to return the product
- Potential litigation
- Frustrated employees (that still need to serve the next customer)
- Time and materials utilized to rework
- Scrap
- Delays customer service
- Too many Reports
- Invoices not collected
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External costs
- Customer goes to another supplier
- Customer complains online
- Press release in case of a recall case
- Word of mouth is non-existent or worse, it is negative
Appraisal costs
- Inspecting material purchased
- Internal and external Audits
- Several employees, usually high paid, control same report
Preventive costs
- Workforce training
- Supplier training
- Procedures developed
You should want everyone to work on reducing costs. For example, workers in the workshop could think on how to save money on the gloves they use. If they have to change gloves every 100 items produced, what happen if they could change them every 130 items produced? If they could find a way to use them longer without affecting the quality of the product at the end of the process the cost could be reduced significantly. Gloves cold represent a very low amount, but if you have 200 people doing the same job for millions of items a year, it could be a difference that even management can see. Whatsmore, people get more engaged at work if they can do something meaningful.
As mentioned in one of the bullets, sometimes many of these tasks are performed by employees that have a high salary. Efficiency is not only important in your operations, it is important everywhere. Every task, even in supervisory positions, can be reviewed and improved. Again, if you think about the dollar per hour spent, you would want your blue collars to spend their time it what really matter, not only to correct mistakes or review reports. You want them to focus on strategic tasks that only they can work on. Unfortunately, many of these costs are hidden for accounting and become missed opportunities for the business. But it’s never too late. Let’s see how you can start working on them:
6 tips to uncover hidden costs
1) Train your employees to analyze their own processes, so that all of them start looking for hidden costs. Build a culture of continuous improvement. Specially leadership positions: where do you get problems dumped on you?
2) Schedule meetings to analyze processes that don’t work well so that employees realize it is important for you and the company. They need to time off work to see what should be fixed.
3) Measure avoidable costs. Consider how many times you are doing a certain activity or reworking a specific material/report, the time spent and the number of people involved. How much money could be saved?
4) Implement and follow-up action plans to reduces those costs
5) Measure how much you actually saved after the implementation
6) Share your results, so that everybody knows that it can be done
I know, reading this article and trying to implement all these tips is also time spent! Yes, you got it! But really, time spent on training is prevention. And prevention costs are the only cost that you may want to increase because they will reduce your other costs. It’s much better to avoid producing errors in the first place.
Do you have any questions? Please contact us!
Business Coach
Owner Biztorming Training & Consulting
1 Comment
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