The silent profit killer

Time and again business owners and managers sit in front of a P&L scratching their heads and wondering what happened after gross profit. The problem is that there are unbelievable losses that don't appear on any spreadsheet. The cost, for instance of inefficiency. During a discussion with a client, some time ago, I was told that process "X" is pretty much OK. It only takes from 9:00 to 12:00, and three hours seem reasonable. Yes, I answered, but in fact there are four people working on it so it is, in fact, 12 hours paid for. Bellieve it or not, I had to explain it twice. But don't take my word for it. Do a little excercise: Locate a multiplier in your business. These are things you repeat multiple times. For instance, invoices issued, stock keeping units picked, packed, deliveries made, sandwitches made, coffees prepared and so on. Now, for argument's sake, let's say your multiplier has a value of 10000 per day. Something your company does 10000 times every day (actual case). Let's, then, say that for any number of reasons (poor placement, bad route planning, lack of access, manual tasks, pigheadedness, stubborn long term employees, obstacles in the warehouse or office, outdated equipment, faulty scanners, slow POS equipment to name but a few) you waste half a minute, on average, on each multiplier. So, our first calculation is: 10000 x 0.5 = 5000 minutes per day. That translates into 83 hours per day or 417 hours per 5-day week. So 1800 hours per average month, give or take. Or 225 8-hour mandays. Which translates roughly into 10 employees. If your cost of employing them is 1400 eur per month each, you are wasting 14000 per month. And people will say "What's half a minute? You're obsessing!" Let's not dig any deeper, e.g. do you have anyone you are paying 2500 that is doing this menial task? Yes, that is a payroll waste with a side order of opportunity cost. And there are so many ways for waste to creep into your processes.

So pay attention to the silent profit-killer that is waste.