Lean and Your Top & Bottom Lines

 Consultant – We help clients deploy Lean management & achieve business performance excellence.  Author & Speaker: Karen Martin, President The Karen Martin Group, Inc. @karenmartinopex 2 www.ksmartin.com/subscribe Shingo Award winner! Shingo Award winner!

You will learn… • How to calculate the financial impact of your improvement efforts. • Ways for improving margins (profit) through expense reduction (but not layoffs!). • Improvements that help grow your top line (revenue/sales). • How to engage executives in the process

Why Does Measuring Matter?

7 When Does Money Matter?

ALWAYS

Ways to Reduce Expenses Hard Dollars; Bottom-Line Results • Less expensive processing • Reduced paid overtime • Less expensive shipping • Eliminate unused software licenses • Insourcing to existing teams • Less electricity/water use • Reduced rent due to smaller footprint needed • Supplier renegotiation • Attrition without backfilling Soft Dollars; Cost Avoidance; Freed Capacity • Lower turnover • Fewer sick days • Fewer workers comp claims • Litigation mitigation • Fine avoidance • Reduced proportional hiring • Reduce reliance on third parties for greater bandwidth • Freed capacity

© 2015 The Karen Martin Group Inc. 11 Key Metrics: Lead Time and Process Time Lead Time (LT) Work Received Work passed to next process or department Process Time (PT) Lead Time – aka Elapsed Time; Throughput Time; Turnaround Time Process Time – aka Touch Time; Work Time; Cycle Time Work is Idle Work is Idle

Value-Adding Process Time Necessary Non-Value-Adding Process Time Delivery Unnecessary Non-Value-Adding Process Time Work is idle Request Lead Time Three Types of Process time

(Current State PT in hrs – Future State PT in hrs) x occurrences/year Available work hours per year * Calculating Freed Capacity Time FTEs (annualized) Labor Dollars (annualized & unburdened) (Current State PT – Future State PT) x occurrences per time period (Current State PT in hrs – Future State PT in hrs) x occurrences/year x hourly pay * Next slide

Available Hours Per Year © 2015 The Karen Martin Group, Inc. 14 # hours paid per year # hours paid holidays # hours paid time off # hours standing meetings # hours required training Minus Minus Minus Minus (Typically 2,080 hrs) (Typically 48-88 hrs) (Varies widely) Typically ranges from 1,750-1,975 hours per year

SNAP Main Tech DEPT HEAD C.O. SK DAAS BO1 ITEM MGR ISEA SUPV CRANE SUPPLY PEO IWS2 CRANE DEPOT STOCK POINT Main Tech C.O. ISEA SUPV PEO IWS2 STOCK POINT SNAPDEPT HEAD SK DAAS BO1 CRANE SUPPLY DOCKSIDE Current State Future State Process Touch Points Handoffs = 47 Lead Time = 486 hrs (60.7 days) Process Time = 108 hrs (13.5 days) Handoffs = 10 (78% improvement) Lead Time = 90 hrs (11.3 days) Process Time = 58 hrs (7.3 days)

P/U AFrame Power Pole Water Before: Floor hand walk distance = 3,095 feet per rig-up • Reduction of 2600 feet walked per floor hand per rig-up. • Reduction of >5,900 miles of walking per year (1000 rig-ups per month). After: Walk distance = 300 - 500 feet

50 hours x 250 occurrences per year 1,750 hours per employee per year Calculating Freed Capacity = 7 FTEs • Absorb additional growth without commensurate labor expense gain • Reduce paid overtime • Reduce unpaid overtime; better work-life balance • Get to know one’s customers better • Add greater customer value in new ways • Make improvements

Ways to Reduce Expenses Hard Dollars; Bottom-Line Results • Less expensive processing • Reduced paid overtime • Less expensive shipping • Eliminate unused software licenses • Insourcing to existing teams • Less electricity/water use • Reduced rent due to smaller footprint needed • Supplier renegotiation • Attrition without backfilling Soft Dollars; Cost Avoidance; Freed Capacity • Lower turnover • Fewer sick days • Fewer workers comp claims • Litigation mitigation • Fine avoidance • Reduced proportional hiring • Reduce reliance on third parties for greater bandwidth • Freed capacity

Top Line Improvements • Create new products (goods and services). • Command max price for existing products. • Create new product features for existing products. • Go into new markets. • Attract new customers in existing markets. • Retain existing customers (reduce churn). • Increase sales volume/frequency per customer. • Charge for all chargeable services. • Reduce write-offs; improve collections.

The Bottom Line It’s tough for anyone to take improvement seriously if you don’t measure and communicate real, tangible results.