Business Process Improvement to face global crisis

During today global economic crisis, top leaders and policy maker in all organization was trying hard to define strategy so that company profit will not decrease due to sales is going down because of slow in demand. In view of profit as a function of sales against operating cost, can improved in two ways, first by increasing total sales, and second by reducing operational cost. Operational cost itself as a function of all spending cost such as raw material cost, manpower cost, overhead cost, utility cost, space rent cost, and everything else can be reduce if we can make our business process become more efficient.

In todays situation, where average sales is start to decrease, operating cost reduction strategy become a must, to help organization increasing profit. Managers as cost control in each departments work together with senior manager to create work structure to reduce cost continuously. Using this approach, senior manager will publish that cost reduction program will be the organization main agenda, not just additional element in business process operation. Subsequently, this cost reduction program will be targeted as core competency of the organization against tight global competition in similar mainstream.

This cost reduction program will work effectively if top management and all department managers call for this program as organization culture by cultivating and raise campaign starting from top managers and spread awareness to all levels employee up to shopfloor. By defining it as organization culture to continuously making process as efficient as possible, it will be importance to instill this cost reduction culture for all employee. Make them aware of current situation burning platform and understand that if this program is not executed, will jeopardize organization future business. The campaign will soon motivates employee to support this program and make it successful. Improvement itself requires changes, to make changes it is required to involve all employee at the very beginning. As day to day work will trap us in business as usual, and they’ll become reluctant and resist to make any process changes. Hence, good change management is required to drive this efficiency program. Statiscally, organization who succeed in implementing cost reduction culture will gain 50% increase in annual profit from this program. A number worth to struggling for by top management and all levels of employee.

We can always see economic crisis in two view, calling it as disaster and make the situation become even worse or calling it as opportunity for improvement and make it as positive trigger to apply cost reduction culture. As organization top leader experiencing this burning platform there will be no choice to jump or fried. When this situation is communicated to employee, they will understand that this program need to be executed as soon as possible. This economic crisis is the right timing to change mindset of every employee to really taking care of cost control.

Statiscally, the very first and most frequent steps taken by organization to implement cost reduction program are:

Eliminating waste (all non value added stuff)
Implementing best practice (all effectively proven improvement stuff)

Eliminating waste and implementing best practice are two easiest steps to be applied by organization and doesn’t required highly sophisticated technology and big investment. These two things can be easily implemented and savings can be acquired in months.

While top management supporting program for continuous cost reduction by eliminating waste and implementing best practice, all managers shall continuously communicating this program and reminding his subordinate and giving direction to improve organization profit. What managers shall do is to equip their employee with tools for problem solvings. Do not let this continuous improvement mindset can not be executed just because they do not know what improvement methodology and problem solving tools that needed to performed the improvement project.

Nowadays, most of companies has adopt Lean Six Sigma as improvement methodology for continuous cost reduction. There a countless organization which had enjoy the fruit of of implementing Lean Six Sigma to run cost reduction program. Lean Six Sigma is improvement method which using many improvement tools such as Design of Experiment, Waste identification, Value Stream Mapping, Four step rapid setup, Process Balancing, Statistical Process Control, Mistake proofing, Root cause analysis, Hypothesis Test, Logistic Regression, and many other powerful tools.

Lean Six Sigma improvement methodology has been proven in many type of industry such as manufacture, telecommunication, banking, hotel, mining, oil and gas, electronics, packaging, semiconductors, moulding, and many others. Famous companies such as General Electrics, Toyota, Dell, American Express, Chevron, ALCAN, Vodafone, and many others as improvement method in implementing cost reduction culture in organization and proven success.

Lean Six Sigma itself is a combination of two amazing improvement method namely Lean Enterprise and Six Sigma. Lean Enterprise was adopted from Toyota Production System which is proven to increase his organization profit exceeds many automotive industries such as General Motors and Ford. Lean Enterprise Method succeed to bring Toyota become the most efficient automotive industry in the world. Toyota become number one automotive industry in terms of sales and profit. While Six Sigma method which is introduced first time by Motorola, it achieve the biggest success while implemented in GE in the hand of world best CEO of the century namely Jack Welch. He managed to increase GE market value from $14billion to be $410billion during his leadership and make GE one of the giant industry in the earth.

Lean Six Sigma employ DMAIC roadmap (Define, Measure, Analyze, Improve, Control) in implementing process improvement. This method ensure that target cost reduction has been identified since beginning of the project and known to sponsor and management. This projects will get full support from top management to provide resources, removing roadblocks, and ensure that project is executed on schedule and meeting cost reduction target.

Generally, Lean Six Sigma deployment in organization begins with initial study to identify Voice of Customer (VOC) and convert it to Critical to Quality (CTQ). CTQ are all quality characteristics required by customer and can be quantified. Second steps is defining which projects will be considered as top priority and will be executed. The senior management will select who will lead the project. In Lean Six Sigma there are terms Champion, GreenBelt, and BlackBelt. Champions are Senior Management who communicate vision and mission of Lean Six Sigma to organization, selecting top priority improvement project, assign project leader to execute the projects. BlackBelt are fulltime Lean Six Sigma project leader who equipped with LSS training and many problem solving tools to accomplish the improvement projects. While GreenBelt has less tools and working as project leader part time. Greenbelt will still doing his daily job. The next step is to improve awareness for champion to understand the importance of business process improvement and ensure that management fully support this initiavites. Champions shall allocates required resources to perform cost reduction project and giving reward for the team who successfully making cost savings. The fourth steps is equipping project leader (Blackbelt and Greenbelt) with Lean Six Sigma training. Here the trainee will be equipped with problem solving tools to execute the project, such that the project can run smoothly and successful. While project is running, project monitoring is performed by champion and sponsor during DMAIC gate review. The purpose is to ensure that project is working right on track, and discussing barriers found during project. When project is completed and sustained, then sponsor will look the business impact of the project. Duplicating best practice of the project, giving reward to the successful team, and selecting next top priorities projects to be executed. Tracking system is required to be made to calculate the dollar savings gained by the projects. This will be continuous program, so that year to year the accumulated cost savings will be a great numbers.

These will be key success from continuous cost reduction program which can be adopted by organization as culture, and eventually will increase organization profitability and maintain business continuity. Organization will become more and more efficient and more and more profitable. Top leaders will realize how big is the value creation achieved by this projects from year to year. The impact will not only for organization but there are reward system which can motivate the employee to accomplish a project, and increase their skills. How about your organization?

By: Riyantono (Business Process Improvement Consultant)