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Increase Profitability With Six Sigma

Learn how to improve your small business by implementing six Sigma problem solving methods.

Entrepreneur

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In any business, there are crucial decisions to be made about pricing, product, sales, accounting, marketing and hiring. Larger organisations rely on teams of employees and consultants who pool experience, knowledge and resources to make the business decisions that impact the company’s operation and growth.

Small business owners rarely have that luxury. Entrepreneurs are typically the sole decision-makers, wearing many hats and solving problems through trial and error. Their personal investment in the business makes it challenging to base decisions exclusively on facts and data, rather than emotion.

Taking a page from the corporate playbook, however, small business owners can use a proven, problem-solving methodology that results in greater efficiency and profitably. Six Sigma for small business can reduce mistakes and waste, uncover hidden costs, streamline processes, improve overall quality of products and services, and increase customer satisfaction.

Why Six Sigma is Important

Small business owners often discount Six Sigma because they think it isn’t applicable to their business. In reality, the methodology can be applied to nearly any chronic problem or “defect.”

One example: The owner of a seafood restaurant often advertises an all-you-can-eat special on crab legs. Half the time, however, he runs out of crab legs before the end of the evening. That same owner regularly throws out pounds of spoiled food. Both incidents represent defects that can be eliminated or significantly reduced using Six Sigma to define and measure the problem. The solution is buried in the receipts and sales data over time. We know how many people are coming to eat, we know how much inventory is consumed, but the owner does not numerically associate the inventory input to the output over time.

The list of potential problems is endless and different for each business. What all have in common, however, is the negative impact on a company’s bottom line. Every mistake or problem results in waste, a loss in terms of time, customer satisfaction or money and, ultimately, profit. Time is perhaps a small business owner’s most precious commodity. Exerting time and energy to address recurring problems is inefficient and compromises profit. Likewise, unhappy customers can cripple or close a business, since small businesses typically lack the variety, resources or volume to overcome a dearth in customer satisfaction. Six Sigma shows small business owners how to ask the right questions and uncover and eliminate waste and defects that may be erroneously accepted as part of the processes and considered a normal “cost of doing business.”

Implementing Six Sigma

The heart of the Six Sigma methodology is DMAIC: define, measure, analyse, improve and control. The best project is the one that will provide the maximum payback. To find it, business owners must consider the probability of success and the effort required in terms of resources and time in relation to the return on investment. A good rule of thumb is to select a project with a low ratio of effort to impact.

Let’s use our seafood restaurant and its spoiled food as an example. (Running out of crab legs during the all-you-can-eat buffet is a different problem, also solvable using Six Sigma.)

1. Define

During the past six months, the cost of spoiled food was R115 127, an average of more than R18 000 per month. The objective of this Six Sigma project is to reduce this “defect” by 50%, achieving a cost savings of R9 000 per month.

2. Measure

Using receipts, stock levels and purchasing records, we ensure that these records accurately represent the continuous level of waste. We perform a “measure system analysis,” which compares what was ordered by the owner to what was purchased by the customer, and repeat this comparison for the past two months. You may find that some records were recorded in error, but now we have a measurement system that is repeatable. We have our problem definition, the defect being the cost of food not consumed by the customer that spoiled per week; and we have our business metric: wasted money on inventory.

3. Analyse

We define a metric by analysing the data, from which it can be determined that 75% of the wasted rands is coming from two sources: beef and high-end fish products. We further determine that of that 75%, the fish products accounted for 80% of the problem. We verify that the source of information is repeatable for the past eight weeks, and the receipts confirm that is, in fact, the case. During the analysis phase, additional defects may be uncovered, such as order delivery times being longer than they should or a short supply of crab legs, thus accounting for the shortage of crab legs during the all-you-can-eat specials.

4. Improve

We have determined that for three foods – beef, high-end fish and crab legs – the amount ordered doesn’t match the consumption rate. Therefore, an 80% reduction in the ordering of the slow-consumption foods – the beef and the fish – will yield a savings of R9 000 per month. Increasing the amount of crab legs ordered lowers opportunity costs by having a supply of crab legs that meets demand during all-you-can-eat specials.

5. Control

To prevent recurrence of defects, we track our shortages and overages and place “threshold spending amounts” – maximum amounts spent based on inventory – on each major food category. A graph of the previous day’s orders and shortages or overages is created daily, with results reviewed weekly. Based on end consumption rates, an action plan is put into place, including such components as a more accurate buying guide and menu adjustments. The “test” of the action plan are the customers voting with their wallets.

Key to consistent growth and success for any business is the ability to monitor changes, spot problems and opportunities first, then act accordingly. It’s tempting to react impulsively or emotionally when faced with a business decision. However, maintaining long-term, reliable growth requires well-developed methods of tracking business goals related to factual income, expenses, growth and quality. Just as entrepreneurs don’t stop tending to their businesses once they are established, neither does Six Sigma stop with the completion of a project. It is vital that small business owners maintain momentum by picking new projects, creating new deployment teams, committing additional and new resources, and continually improving businesses.

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Increase Profitability

Leon Meyer GM At Westin Cape Town Shares 4 Experience-Driven Tips On How To Keep Your Team Productive

Productivity is a fundamental requirement for an organisation – it’s the seed that builds a business and contributes to higher profit margins.

Leon Meyer

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Productivity is a fundamental requirement for an organisation – it’s the seed that builds a business and contributes to higher profit margins. But what’s the best way to ensure employees remain productive, and happy in their day job?

The answer is simple and highly effective and I choose to sum it up with three short phrases – respect, trust and teamwork.

In partnership with my management team, which consists of about eight staffers across various disciplines, we strive to tick these boxes.

Related: 5 Surprising Elements That Boost Your Productivity (One of Them Is Colour)

In total we’re ultimately responsible for managing roughly 500 employees.

Five hundred employees across several departments is a mighty job. But with teamwork, good listening skills and the right attitude from the top to filter down, any business can run like a well-oiled machine.

I’d like share with you the essentials for building and maintaining a productive workforce, and these apply to all industries, not just the hospitality sector:

1. What’s your definition of a productive team and how do you achieve that?

We need to keep in mind that productivity is a result, one that CEOs and managing directors strive for with their teams. But what happens beforehand in order to achieve that result determines whether it will be achieved at all, and is equally important. I suggest the following to ensure a productive team:

Define roles and responsibilitiesDirection is incredibly important; everyone needs to know exactly where they’re going and how they need to get there, so KPIs are essential.

Often when roles and responsibilities are unclear, things go pear-shaped. I am an advocate for setting clear KPIs, it’s a good way to steer us in the right direction, and in turn helps to grow the business and the individual in his/her role.

Be flexible: Rigid environments are the worst kind, allow your employees some flexibility and the opportunity to be themselves in the workplace. We spend so much of our time at work, we need to be ourselves there.

Celebrate the team: When there are achievements, celebrate them, single out individuals who are excelling and living the company values. This builds morale and is indicative of appreciation, which is fundamental when running and building a business.

2. What has and continues to be your philosophy since managing a large team?

Know your strengths and weaknesses, as well as your team’s and leverage off that. Be prepared to learn from others, no one can operate in isolation, regardless of the level on which you operate. Accept criticism and don’t bulldoze someone’s ideas, that’s how you build trust.

3. What in your view are the top characteristics the team look for in a leader?

  • Be consistent – inconsistency screams bad leader
  • Provide guidance – this is key, don’t turn a blind eye, give input and council
  • Listen – always listen intently
  • Be impartial – always be fair
  • Give credit – it builds morale and shows you recognise good work
  • Be patient – Rome wasn’t built in a day, and remember not everyone thinks the same as you do

4. What’s your view on an open door policy and how does it assist with managing a team and ensuring everyone remains productive?

I believe in an open door policy. It’s essential to build and develop trust. I’m the first to admit that it takes a while to build that trust, but once the team (on all levels in all departments) know your door is always open, and that they can trust you implicitly, half the battle has been won.

I host a GM’s roundtable every two months, just to establish how everyone is feeling and where everyone is at. It gives staff the opportunity to bring their challenges to the table, and I deal with them the best I can.

It’s 100 percent confidential and line managers are not allowed to attend. During this meeting we try reach common ground, and I commit to addressing and ultimately solving the problem(s).

Related: 10 Ways To Make Your Employees 10x More Productive

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Increase Profitability

Why Purpose Drives Profits

If you want to succeed, it’s time to start engaging where it matters.

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Over the past two years, many clients have been extending brand positioning exercises into purpose-driven expressions.

When we look at it, it makes sense given the country’s demographics. With many of our fellow countrymen struggling to make ends meet, brands have stepped in to provide them with a picture of a future worth striving for.

Global customer-centricity study, Insights 2020, led by research firm Kantar Millward Brown, has attempted to understand how brands could drive customer-centric growth as well as the factors that really make a difference. The research surveyed 10 495 individuals in 60 countries, and there are some significant efforts worth investing in if brands want to engage where it matters most, in consumers’ hearts.

The research uncovered that for market-leading companies and brands, traditional value drivers such as quality, packaging, or distribution are necessary, but no longer provide a competitive advantage; most brands are capable of providing these drivers. What is important, are a few critical approaches.

1. Purpose-led brands

The study found that when companies or brands linked to a purpose, 80% of them outperformed the market. Only 32% of non-purpose led brands managed to perform better than the market. 

Related: How To Calculate Gross Profit

2. On the ground

It’s important to engage with consumers in their space and on their terms. Through the use of memorable campaigns, experiential events and activations it is critical to engage with consumers on their turf.

3. Be truthful and authentic

Consumers can smell something inauthentic a mile away, especially when it’s coming from a brand. This forces brands to strive for authenticity in everything they do, especially when it comes to marketing. Building values and principle-based attributes into your brand as a guiding tool is essential.

4. Helping consumers commit

By allowing individuals to attach themselves to a brand with a purpose, it helps consumers personally commit to a cause that they consider important. When a consumer is personally invested, the link between the brand and product or service deepens.

Related: Profit Share for Increased Performance

5. Balancing heritage and modern relevance

There is a continuous tussle in balancing the traditional market, transitional market and the new consumers brands are trying to attract. Keeping the heritage and roots of the brand true to itself, while creating relevance for the new market, is a battle marketers are still fighting.

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Increase Profitability

Need To Trim The Fat To Boost Profitability? Listen To Your Clients First

Jeff Bezos believed that once you win the client over by doing this, everything else will follow – not least profitability.

Marc Wachsberger

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Finding the balance between offering the extras that set you apart from your competitors and keeping things ‘lean and mean’ to minimise wastage and maximise return on investment is a tricky balancing act.

I’ve noticed that many businesses try to attract or retain customers by offering what they think their customers want, rather than finding out what they really need, and then delivering that. That’s an expensive mistake to make – and it’s not going to achieve the business results you need.

I’ve also observed that now is the age of the new entrepreneur – the game changers who disrupt the status quo long set by big bureaucratic competitors who think that their customers will just accept an inflationary (or slightly larger) increase every year, just because they always have.

While Amazon has been around for a while now, there’s also an important lesson to be learned from its launch goal, which was to bring the price to the client. Jeff Bezos believed that once you win the client over by doing this, everything else will follow – not least profitability.

How have I applied these lessons in my business?

Firstly, we design our hotels backwards – we focus on the needs of our clients, very aware that what hotel guests wanted years ago is not what they want now. That’s why we don’t offer thing like a turn-down service with chocolates on the pillow. Nobody eats the chocolates, and nobody uses the toiletries – so why should we include the costs of these unwanted extras (and the cost of the staff required to implement them) in the final bill to our clients?

Related: 7 Steps To Optimise Your Cycle Of Customer Service

We do, however, offer free WiFi internet connectivity, free parking in our buildings, free laundry services and either bed-and-breakfast options or self-catering rooms.

Simply put, we’ve cut the fat that nobody wants anyway, and added the value that our guests have said they expect.

Our clients have said that they expect the whole hotel to be a workstation, and not just the business centre in a dark, unwanted corner. So, we’ve put a workstation in every room, with always-on access to the internet. Our hotels are designed with beautiful work spaces that cater for nomadic entrepreneurs and double up as comfortable meeting spaces, again – gone are days of boardroom only meetings, our spaces are primed for work and play in one integrated space.

Our clients have pointed out that they’re already paying for their room – so why should they pay for parking?

Many of our clients stay with us for days or weeks at a time, and have said it would be helpful if we did their laundry. So, we do that for them – and we don’t charge them for it.

Related: Good Customer Service Is About Relating At The Same Level

It’s true that many of our old-school competitors offer a broader range of products and services than we do, but we’ve built a successful business on adding the value that our clients need, removing the costs and extras that annoy them, and keeping costs (theirs as well as ours) under control by cutting out unnecessary frills.

It’s an approach that’s worked for The Capital Hotels and Apartments as a disruptor in the hotel and long-stay accommodation industry, and I’m confident that its principles would apply to any other industry that’s ripe for disruption.

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