Tuesday, September 29, 2009

Major on the Majors

Do you worry about your teen's haircut more than his or her grades? If so, you're not majoring on the majors. We need to focus on the important things in life and in business.

Quite a few years ago, I went to a meeting at headquarters. A bar code system was demonstrated and the discussion centered on using the system for tracking labor. People would scan in as a check-in for any of the production lines. We would have a record of who worked on the line and on which products produced that day. A neat system if it worked. However, we were focusing on the wrong things. In my normal learning mode (though some consider it as rebellious), I asked how much labor was to the total costs proportionally. In this case, labor was 4% of the total costs. Material was 60%. Freight was 12-15%. I suggested that if we're going to spend $1 million dollars on a system, that we use the system for materials. It's much more costly when we lose or scrap a pallet of steel than if Joe is working on an assembly line making $15/hr when the budget is $14/hr. For this company, the labor change amounted to pennies per unit. Not a major cost component. The answer to my question: "we've already made the decision to spend the money on this system to track labor." The outcome: the system didn't work and was scrapped in less than 3 months. I don't know if it would have worked tracking material either, but it would have been worth further investment to fix it for these major costs.

Likewise, when many companies go into costs and expense reductions, especially in these recessionary times (yes, I know it's been declared over), too many people focus on the easy stuff: travel, office supplies, perks, etc. If you cut all of them out, how much of the budget would be reduced? 5%? 10%? More if you're lucky? If we're need to make a dramatic impact, we need to look at the major expenses. If we cut them by 10%, we might save as much as asking everyone to supply their own pens and paper. And we probably won't damage morale because we're doing the right things, not just the easy things.

We can overlook small errors, too. Let's save our anger for the big mistakes, the unsafe behaviors, the nearly catastrophic contract-killing clauses that slipped through. Let's not get bothered too much by the incorrect invoice, the damaged part or the forgotten reply to a voice mail. (Unless it's a pattern...but that's the subject of another blog posting!)

Remember: Major on the Majors, and minor on the minors.

No comments:

Post a Comment