SMEs play an important role in the economic development of a country. Their role in terms of production, employment generation, contribution to exports & facilitating equitable distribution of income is very critical.
Nowadays, SMEs face various challenges, constraints and challenges in terms of size, liquidity issues relating to day to day operations. Small enterprises struggle to address all these issues on and get discouraged with the complications.
However, SMEs have always been thriving with fighting spirit and should focus on key drivers for growth, which is stability and sustenance. For any business to sustain and maintain stability the application of PDCA (Plan Do Check Act) and SDCA (Standardize Do Check Act) principles is directly proportional to the profit of the organization.
There are concisely two ways to improve profitability in any business organization:
1) Top line growth
2) Cost Management
We received an overwhelming response from our readers for the first article encompassing the topline growth. While PDCA in business terms is topline growth and SDCA is the second wheel. In this article, we shall dwell upon 2nd driving wheel which is cost management.
Cost management is rooted in the efficiency of 4Ms – Man, Method, Material and Machine. Basic stability of 4Ms is as follows:
The workforce which highlights the manpower productivity of the organization is the primary component for profit maximization. The presence of right skills and appropriate orientation enhances the efficiency of a person, which adds value to the output of the organization. Skill development and skill analysis play pivotal roles in organizational growth and transformation. These skills can be analyzed with the help of skill analysis tools like PriZma and others.
Methodology pertains to having standard operating procedures for each and every activity occurring at the workplace. Because it is observed that for 90% of the tasks to be executed successfully and to sustain,the standard procedures should be in place. Method can streamline the focus on having a best approach to use a variety of situation appropriate tools, which complement each other, and remove the short comings from using one methodology in isolation. Such improvements should set in before standardization or ISO implementation.
The presence of right sized equipmentwhich operates as per the requirement in terms of availability, performance and quality (APQ) is the third key element. TPM (Total Productive Maintenance) by JIPM (Japan Institute of Plant Maintenance) is one of the effective frameworks designed till date focusing on OEE (Overall Equipment Effectiveness) improvement which is a function of APQ. This framework helps to optimize your production and maximize your profits.
Material is the major element of costing for any manufacturing setup. Also, it is the major cost driver, where many organizations focus on manpower cost after material purchasing cost. We would like to highlight to our readers there are four efficient ways to manage this cost. The progressive organizations have started realizing that Materials Management can provide opportunities to reduce manufacturing costs and can be treated as a core profit driver.
Four essential drivers to regulate cost management:
1) Working on procurement cost via good sourcing practices
2) Proper reduction in throughput time starting from raw materials to finished goods by apt material flow and efficient inventory management practices.
3) Further working on material costs via wastage, rework or reject reduction and yield improvement projects.
4) Value engineering – In every product life cycle after approximately every 4 years, there is possibility for implementing vital concepts of value engineering to improve the value and reduce the cost.
Considering these aspects and working on them carefully, any business can pave the wayfor becoming a world class organization. Understanding the use of these drivers alone won’t suffice, since implementing these drivers is equally important and essential. It is vital to adopt these strategies of cost management to improve and maximize profitability.