10 Commandments For A Profitable Operation

Happy Sunday Operators!

A while back we held a summit for all our Plant Managers in Minneapolis. One of the main problems they were having is that they were focusing on all the wrong things. Some were focused on great engineering, while others focused on the cleanliness of the offices. While these are great endeavors, none of them were focused on being profitable, and as a result, some of them weren’t.

So, we wrote them 10 commandments of a profitable plant - those things to focus on in order to make sure they were profitable.

Below is a slightly adapted version that any business can use. Working on following the commandments, should nudge you towards the many tactics, systems, and ideas that drive profitability in companies.

I hope you enjoy!

THIS WEEK
A Few Things You May Have Missed

MAIN ISSUE
10 Commandments For A Profitable Operation

The key to maintaining a profitable business lies in understanding and implementing fundamental principles that cut across various industries. Whether you're in manufacturing, healthcare, legal services, or distribution, the following ten commandments provide a solid foundation for keeping your business profitable. They're about managing the core aspects of your operation to maintain efficiency and effectiveness.

1. Prioritize Health and Safety

A healthy workforce is essential for maintaining high productivity levels. Ensuring safety reduces the risk of workplace accidents, which can lead to costly downtime, higher insurance costs, and legal issues. Additionally, a focus on health and safety improves employee morale and loyalty while reducing turnover and the cost of hiring and training.

Benefits: 

• Lower insurance cost

• Enhanced employee productivity.

• Reduced legal liabilities and compliance costs.

• Improved employee retention.

• Lower healthcare and insurance expenses.

Actionable Tips 

👉️ Regularly review and update your workplace safety protocols.

👉️ Do informal 1:1s to gauge satisfaction and engagement. Use Gallup’s 12 questions for engagement.

2. Optimal Staffing Levels

Correct staffing levels are critical for balancing workloads and maintaining quality. Understaffing leads to employee burnout and reduced service quality, while overstaffing increases operational costs unnecessarily. Finding the right balance is key to efficient and effective operations.

Benefits: 

• Optimal use of human resources.

• Balanced workload among employees.

• Maintained product or service quality.

• Controlled operational costs.

Actionable Tips 

👉️ Utilize metrics to find your company's ideal staffing level and adjust as necessary.

👉️ Regularly assess and adjust staffing based on workload and growth.

3. Effective Training Systems

Proper training equips employees with the necessary skills and knowledge, leading to better product quality and customer service. It also reduces the likelihood of errors and inefficiencies, which can be costly. Continuous training is a cornerstone of a dynamic and adaptable business.

Benefits: 

• Improved employee performance and efficiency.

• Enhanced product/service quality.

• Reduced error rates and operational costs.

• Increased employee satisfaction and engagement.

Actionable Tip: 

👉️ Develop comprehensive training programs for new processes or technologies.

👉️ Take your onboarding and initial training very seriously.

4. Implement Scalable Systems and Processes

Scalable systems and processes are vital for managing growth effectively. They allow for the delegation of decision-making, which prevents leadership from becoming a bottleneck. These systems also ensure consistency across the business, regardless of size.

Benefits: 

• Facilitates sustainable growth.

• Enhances operational consistency.

• Reduces dependency on individuals.

• Allows for efficient resource allocation.

Actionable Tip: 

👉️ Create systems that empower employees to make decisions within their scope.

👉️ Design systems that can easily be scaled

👉️ Continuously update processes to accommodate growth

5. System Adherence and Ease of Use

The effectiveness of any system hinges on its adoption and use by employees. Systems need to be user-friendly to encourage compliance and reduce resistance. Making it easier for employees to follow procedures ensures consistency and efficiency in operations.

Benefits: 

• Ensures consistent application of processes.

• Reduces the likelihood of errors.

• Enhances employee productivity.

• Streamlines operations and saves time.

Actionable Tip: 

👉️ Design systems that are user-friendly and reduce the effort of compliance.

👉️ Regularly gather employee feedback to improve system usability.

6. Maximize Value-Added Activities

Concentrating on activities that directly contribute to the value of your product or service is essential for maximizing profitability. This focus helps in identifying and eliminating wasteful practices, thereby reducing unnecessary costs and improving operational efficiency.

Benefits:

• Increased efficiency in operations.

• Enhanced focus on core business activities.

• Reduced operational costs.

• Improved customer satisfaction through better product/service value.

Actionable Tip: 

👉️ Continuously identify and eliminate non-value-adding activities.

👉️ Push activities and decisions as low as you can for maximum value

7. Identify and Eliminate Bottlenecks

Bottlenecks can significantly impede business operations and reduce output quality. Identifying and resolving these issues is crucial for maintaining a smooth flow of operations. This proactive approach helps in optimizing resource utilization and enhancing overall productivity.

Benefits: 

• Smoother operational workflow.

• Higher quality outputs.

• Better resource utilization.

• Increased overall productivity.

Actionable Tip: 

👉️ Always know where your bottleneck is

👉️ Set your bottleneck purposefully

8. Proactive Measures

In manufacturing, this is about taking care of machines so they don’t break down. You can spend $100 per month greasing the machine, or deal with a $20,000 breakdown that loses $100,000 in revenue. However, manufacturing isn’t the only place where proactive saves time and money. Any business that has customers can be more proactive in communicating changes or issues ahead of time. By monitoring cash you can stay ahead of liquidity issues and make sure you don’t get in a tight spot. Preventive actions are the key to staying around for a long time. Reactive actions are how you end up mired in daily fires, unable to grow.

Benefits:

• Reduced stress

• Sustainable operation

• Better cash flow

• Increased customer satisfaction

Actionable Tip:

👉️ Continually be looking for easy “up-front” actions to prevent problems down the way, and build them into systems.

9. Continual Problem Solving and Improvement

A continuous focus on problem-solving and process improvement is essential for long-term success. By identifying the root causes of issues and addressing them, businesses can prevent recurrence, improve efficiency, and reduce costs.

Benefits:

• Enhanced process efficiency.

• Reduced operational costs.

• Improved product or service quality.

• Foster a culture of continuous improvement.

Actionable Tip: 

👉️ Implement a system for tracking and analyzing problems.

👉️ Regularly review and update processes based on problem-solving insights.

10. ROI-Focused Spending

Ensuring that every expense contributes to cash generation is key to financial efficiency. This approach encourages strategic investment in areas that offer the highest return, such as technology and staff development, and minimizes unnecessary expenditures.

Benefits: 

• Improved financial efficiency.

• Strategic allocation of resources.

• Enhanced revenue generation.

• Better overall financial health.

Actionable Tip:

👉️ Categorize expenses into revenue-generating and non-revenue-generating, and prioritize accordingly.

👉️ Categorize and assess expenditures based on their ROI.

Additional Key Points

Based on the above, here are some main drivers of profitability.

• People and Systems: By developing top-notch people and efficient systems, you set the stage for your profits to grow steadily.

• Value Delivery Analysis: Understand how your business creates value. This understanding is key to boosting profits and identifying where you can cut out tasks that don't add value.

• Eliminating Non-Essential Tasks: Recognize that every business has activities that don't contribute to its core value. These can often be removed, automated, or handed off to more cost-effective team members.

• The Power of Great People: The better your team, the smoother your business runs. Investing in your people pays off in every aspect of your operations.

• The Impact of Effective Systems: Well-designed systems lead to consistency, repeatability, and scalability in your business, making everything else easier to manage.

• The 1.05 Rule for Spending: Aim for every dollar spent to generate at least $1.05 in return. This approach, over time, will grow your business to any size.

Step-by-Step Process for Ensuring Profitability

You can take all the rules above and condense them down to a step-by-step process to ensure profitability at your company.

1. Design Value-Driven Systems: Design systems that deliver consistent and repeatable value

2. Determine Optimal Labor Requirements: Figure out how much labor you need

3. Recruit and Nurture Quality Personnel: Hire great people and take care of them

4. Provide Comprehensive System Training: Train them on your systems

5. Maintain Accountability and Motivation: Implement systems to keep people on track including audits and incentives

6. Regularly Enhance Business Systems: Consistently review and improve the systems used

7. Leverage Problems for Improvement: Use problems as a way to find where to improve your business

8. Shift to Preventative Measures: Move towards preventive work and away from reactive as you learn more

9. Ensure Financial Expenditures are ROI positive: Account for every dollar and make sure it generates more dollars for your company

10. Continuously Repeat

Adhering to these commandments not only ensures your business remains profitable but also improves the quality of your service or product and overall operational efficiency.

RECOMMENDED READING
You May Find These Helpful Too