How to benefit from rising energy and raw material costs
The rising cost of energy and raw materials is highlighting a current but often underestimated problem by managers: the impact of waste in the business economy.
The first problem is related to the definition of "waste" in a business context. Only few perceive the fact that any action, unable to bring a substantial added value to the company, represents a potential waste.
The above definition of waste comprehends situations that are very usual in business, which only a few people can identify: downtime, communication misunderstandings, poor clarity of roles, internal conflicts, lack of clear procedures, vague or non-defined objectives, demotivation, outdated tools, mediocre technical skills, and so on.
Each of above situations compares to a small hole in a watering rubber hose: only a few drops of water will slowly come out of each small hole, but at the end of the day (or a month, or a year) we would realize how much water we have needlessly thrown away.
The first thing to do would be to become aware of how much waste we have in a Company, maybe small but repeated over time, and begin to quantify the damage in economic terms.
How much does it cost us a nonconformity in terms of quality? What does it cost us for a good employee to leave because of the bad environment in the company? How much does it cost us a communication misunderstanding that produces an error in our sales process? How much does it cost us to lose a customer because of an internal organizational cause? If we start doing this calculation, we will soon realize how much these wastes impact margins, and consequently profits at the end of the year.
Let’s stop and analyze our internal situation: I am sure we will find one or more wastes with big opportunities for optimization.
A good manager should perfectly know where the waste is, but no one has the time or humility to identify them and plan for improvements.
It would be enough to identify waste and take a series of corrective actions, aimed at making people more efficient and improving the balance sheet at the end of the year.
What does rising energy prices have to do with business waste? They matter: before to complain about the external factors affecting profits, internal factors must be fixed.
Aircraft operators and MROs today are complaining - rightly - about the huge increases in raw materials and the disproportionate rise in energy costs. But first they should think about how much they could save with proper optimization of their inventory.
We already talked about inventory optimization in our blog, and the numbers are proving us right, all the companies that rely on our Trust Consignment Program get unexpected results because we turn their Liabilities into Assets. At the end of the year, they discover revenues in their balance sheet that they didn't know about.
Here is the positive side of the medal: one side of the medal leads us to increased costs, but the other side opens our eyes and makes us consider opportunities we never considered before.
If you are a Manager willing to make strategic decisions for your Company, and want to know more about our Trust Consignment Program, you are welcome to get in touch with us at any time, just clicking here.
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