Finding the opportunity with variable overhead costs requires trying to understand how these costs are allocated in the financial statements and then analytically drawing some correlations between those costs and the process hours.
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When companies volumes decline they are often stuck with more fixed costs than they need. Fixed costs are often much more difficult to reduce than variable costs because they represent a longer term commitment in many cases.
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Indirect labor includes supervisors, material handlers, quality technicians, mechanics, and IT support, all functions which are required to support the production of goods or services. While the functions are important to keep organizations working, its not always easy to determine how many people you actually need.
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Hours worked are driven by how many people you need to run a process to achieve some volume output. So there are two distinct analytical questions; how do you staff the process, and how well does the process run?
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Material costs can make up a significant part of a product’s cost structure, often many times more than labor costs, so it’s a good profit driver to focus on to find opportunities.
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Cost reduction is generally perceived as fairly negative whereas revenue improvement is almost always positive. But many improvement projects focus on cost, rather than revenue. Why is that?
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When we look at organizations to assess opportunity, we focus on ten key profit drivers.
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Suggestion boxes are one of those seemingly good ideas that can easily backfire. When we are studying a process area we create a big wall map which is a visual presentation of how the process works. It makes it easy for employees to see how and where their part of the process fits into the whole.
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Due to the functional nature of most organizations, workload can become quite easily unbalanced when you look at it from the perspective of a horizontal process.
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World-class, or best-in-class, are terms that organizations like to use to either describe themselves or to use as a benchmark comparison. These terms are often used as some kind of blanket description.
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