07/01/2024
Address your business's Achilles’ heel: rationalize your indirect processes!
Every business produces sellable results through a combination of direct and indirect processes. Whilst the direct processes may vary, the indirect processes are the same for most types of business.
Direct processes are continuously monitored, measured, and optimized. Whole sections are established, whose sole purpose is to monitor, measure, and optimize every step and activity involved in every direct process!
What about indirect processes? That’s the Achilles’ heel of 90% of businesses! Being penny-wise with your direct processes, yet pound-foolish with indirect processes!
Let me elaborate with an example:
In the early 90s (before e-mail & scanners were a common feature), I worked at a huge automotive manufacturing plant. Every quarter, Industrial Engineers (IEs) had to produce a report for the area of their responsibility. For this report, it was essential that the Human Resource (HR) Department's records reflected reality, with respect to labour allocation – down to the detail of who worked at which workstation.
This resulted in a flurry of activity, every IE printing out lists, and running around verifying every single workstation – we’re talking hundreds of workstations! Filling out heaps of paperwork, rushing around to get them signed, followed by HR having to process every single change.
This made no sense to me. The process was excessively wasteful – it would be much more efficient to maintain accurate records, than this quarterly madness to verify and update!
I sat down to study and optimize the process. Together with HR, we re-designed the form, cutting it from four pages down to two. We rationalized the process – which previously included several steps, which were no longer relevant. Then rationalized the allocation of responsibilities of the various steps in the process.
I simply applied the same approach of monitoring, measuring, and optimizing, already in use on direct processes to the indirect processes – resulting in a huge saving of the indirect operating costs.
One important point: initially the responsibility for the entire documentation process was assigned to production staff. When they did not fulfil that responsibility – IE and HR paid the price, as we were the ones who needed the records to be up to date. Rather than initiate disciplinary measures against production, we shifted the responsibility to ourselves: IE. Production still had to alert us to changes they made – whether they did so or not, we deliberately left to depend on the cooperation between production and IE.
How many periodical events trigger a similar chaotic flurry of activity in your business? Quarterly reports? Audits? Visits from investors? How often does that lead to overtime?
Most importantly: how frequently are your Key Performance Indicators updated? Quarterly? Monthly? Can you afford to get off track for an entire quarter? An entire month?
One of the top reasons cited for business failure is: Cash Flow. How current is your cash flow statement? Can you afford to make decisions based on outdated information? Preparing your cash flow statement is an indirect process. Failure to rationalize the preparation process is the root cause of cash flow leading to business failure!
How many of your indirect processes include irrational steps? Steps or tasks, which take up time, but are no longer based on reason? When I talk about rationalizing, I mean the removal of all irrational aspects!
And how many steps or tasks were stitched into processes in an attempt to make the process foolproof – in response to an error or mistake? These stitched-in steps and tasks invariably slow down the process, the more stitches, the more cumbersome the process – when last have you reviewed your indirect processes?
How many of the aspects and principles essential to your direct processes are applied to your indirect processes? Like Efficiency. Quality. Maintenance. Housekeeping. Health and Safety.
Compare your material inventory system to your stationery inventory system! Are you applying the same processes to both? Or your office supplies – cleaning materials, toilet paper, coffee, sugar, etc.? What about the procurement process for the latter two? Different from the process for production materials? Why?
A popular pseudo-solution is to automate indirect processes, with programmed systems. Why do I call that a pseudo-solution?
Because nine times out of ten the expectation is that the system will eliminate human error. It also eliminates human logic. Let me elaborate:
Instead of hiring a qualified buyer, you purchase a buying system. Anyone can work that, once they learn where to enter which information – the system does the rest. Say, you’ve set it up to follow standard best practice of getting at least three quotes. Then you want to buy a rare material, which only two companies supply. You need to order, so, after a quick discussion, it’s decided to enter a ‘fake’ third quote to bypass the system.
Right. Crisis averted, you placed the order, now what? Do you re-evaluate the system, to rationally incorporate this exception? Or … are you adding the ‘fake quote’ to your standard procedure? Nine times out of ten the latter – turning the solution into a pseudo solution.
Another example: Years ago, I was asked by an international buyer how the exchange rate works! She had been using the system, entering numbers where she was taught, and generating international purchase orders in foreign currencies – without needing to understand how foreign currency values are calculated!
Which implies that she had no means to verify the results! No means to identify typing errors! Yet, management relies on this input for decision-making!
The key takeaway here is: that automation does not guarantee rationality nor efficiency!
So, what does? How can anyone guarantee rationality and efficiency?
Startups and small businesses are especially vulnerable to the financial drain of inefficiencies – at the same time, they are not in a position to hire experts to stop the drain.
The pursuit of Efficiency is a never-ending process. There are many aspects to be covered and an ever-growing multitude of techniques are becoming available. Yet, as with all scientific tools, they are derived from common sense – and quite easy to use!
As I explore relevant aspects, sharing my experience and the techniques I have applied – and still apply – to continuously improve my efficiency! At home, as well as in business. I’m confident you will find valuable insights, easily applied to your own business and/or home!
You’re also welcome to contact me if you are facing a specific issue, which I may be able to assist you with! I look forward to hearing from you!
What? I’m sharing valuable experience – for free? What’s the catch?
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