Finding ways to lower your expenses and increase profitability while growing your business comes part and parcel with being a small business owner. That’s particularly true when economic headwinds may pose a fiscal drag on your finances.
As managing a small business’s cash flow is always a primary concern for owners and entrepreneurs, one way to give yourself an edge is to step back and take a hard look at how to eliminate wasteful activities in your company.
Enter the methodology referred to as ‘lean thinking’ or ‘lean management’. It may be the framework your company needs to rearrange how you do what you do. For startups and growing businesses, by applying lean thinking principles, it allows you to focus on the things that you’re good at and develop them before gradually adding new services to your business.
What Is Lean Management?
Lean management is a means of promoting and supporting the notion or concept of ‘continuous improvement’. It’s a system to achieve incremental but necessary improvements to enhance your small business’s efficiency. At its core, lean management endeavours to increase customer value by optimizing your company’s internal processes.
Lean management focuses on enhancing your business’s work processes based on production principles established by the Toyota Motor Corporation. Though it originated in automotive manufacturing, lean management can apply to almost every industry, including software development, construction, hospitality, retail and more.
Lean management aims to add value to your organization by developing and respecting your employees, rooting out potential problems and solving them, and eliminating waste by creating a steady workflow that meets customer demand.
Defining What Lean Waste Is in Your Small Business
What lean waste looks like in your organization varies by the type of industry you operate in and the goods and services you provide.
In general, and according to lean management experts, there are seven wastes of lean in business operations:
1. Overproduction
The challenge: Overproduction is perhaps the most significant waste in any business. Think of overproduction as producing more goods than are needed, thereby exceeding customer demand. It leads to increased storage and labour costs and triggers additional waste.
How to deal with it: Establish a production plan that includes forecasting future demand based on market trends and your company’s historical sales data.
2. Inefficient operations
The challenge: When times are flush, you might not notice inefficiencies in your organization. But they can become glaringly apparent during an economic downturn or when inflation spikes and impacts your costs. Inefficiency can take many forms, such as overprocessing products and storing excess inventory (see below). It typically leads to more expensive materials and production costs and erodes your bottom line.
How to deal with it: Create production processes and procedures that maximize your employees’ output in a timely manner, and reduce the amount of material that goes to waste.
3. Defective products
The challenge: Defective or poorly designed products and services are a serious drain on your profit margin. They lead to higher labour costs, customer returns, complaints, and lost revenue. Furthermore, an angry customer could air it online, hurting your brand.
How to deal with it: Quality control is critical. So is establishing standard procedures in your production line and training employees to ensure they understand and follow them, whether baking pastries, manufacturing machine components, or developing software products.
4. Inventory
The challenge: If you have more inventory on hand and in storage than you can sell, it leads to higher storage costs, more time for employees to manage that inventory, and spoilage if the products you have in storage are perishable.
How to deal with it: Review your existing inventory management processes and find ways to balance your current and anticipated customer demand. Categorize items or supplies you can never afford to run out of, things you need to have in stock though they may not be big sales drivers and those that you can comfortably do without on a regular basis.
5. Employee downtime
The challenge: If you’ve ever worked in a restaurant kitchen between lunch- and dinner-hour rushes, you may be familiar with a manager telling you to “clean – don’t lean!”. In other words, do something! From a business owner’s perspective, inactive employees represent low productivity and high labour costs.
How to deal with it: Utilize your employees’ talents and set your team up for success by engaging them to suggest ways to collaborate and contribute to improving their processes. Provide them with the opportunity to learn and grow their skills as well.
6. Extra processing
The challenge: Whereas overproduction sees a company creating more products than it needs in a specific timeframe that go unsold, extra processing involves spending additional time on tasks to include features or add-ons to a product that doesn’t produce any value. It’s a waste of your internal resources and labour.
How to deal with it: Think about your production plan, who your customers are and what they value.
7. Transportation
The challenge: For a manufacturing company, transportation waste could be shuffling parts from one location to another over and over. For software developers, they might be pivoting from one task or project to another too often. Either scenario leads to higher costs and interruptions that take too long to bring your product to market.
How to deal with it: Depending on your business, you may need to rejig your shop’s workstations and internal processes to shorten the time-to-market and optimize your transportation flow.
How Lean Management Can Help Lower Your Business Insurance Costs
Business insurance exists to protect and support small businesses from damage and loss, and insurance providers determine how much your insurance policy costs by considering the level of risk your organization faces.
Insurance premiums vary and can rise for several reasons, but there is a link between improving your company’s efficiency and reducing its risk. Speak to a Zensurance licensed broker to review your policy and find out how you can mitigate your risks.
— Reviewed by Aharshan Thangarasa, Team Lead, Contractors, Zensurance.
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