1. Eliminate waste
Eliminate reports, habits, products, duplicate input, and processes that waste time and money. These drain labor, money and energy from the business.
Two-thirds of products or services sold incur more costs to produce than they are sold for. These are a drain on profits. These losers can be reduced by either increasing prices, reducing direct costs incurred in producing the product or service, reducing overhead costs allocated to the products or services, or discontinuance of selling of the product or service.
Some of these profit robbing costs may be found through asking employees for feedback on duplication of efforts, unused reports, and other wastes of time or money, or through cost accounting or other analysis systems.
Eliminating waste increases the amount of space, labour, time, energy and money available for other profit-making activities.
2. Reinvest a portion of the savings in profit-generating activities.
Once the waste reduction frees up money, time, labour, space and energy, invest part of the savings in continuous improvement.
Some of these continuous improvements are already in most company’s budgets. Equipment replacement (depreciation), marketing, training and research and development are all current cost or expenditures to generate future profits.
An analysis of return on investment of discretionary expenditures should find further areas where the investment will yield results. Investment should be made in a combination of projects with short payback periods and those with high rates of return.