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September 2024 #16302 Page #26
Why Are So Many Companies Unknowingly Losing Millions?
M
illions of dollars are being lost by many companies that don’t recognize they have a problem — Does your LBM Todd Drummond company have more than $50 million combined sales? Quantified as a ratio of sales, according to Six Sigma case studies, the cost of poor quality, defined as waste, inefficiencies, and defects, can be as low as 5% to as high as 40% of sales. Most companies’ average loss from inefficiencies is about 20% of sales. But that term, “inefficiency defects,” is difficult for most people to comprehend as affecting their company in such stark terms. This article contains some straightforward examples and a solution to uncover these hidden losses; perhaps your company will gain millions of dollars. To quantify the cost of inefficiency, let us use sales per year for individuals, such as salespeople and technical people like component designers. Common sales output by groups for an LBM with $100 million in sales per year: • Designer/technician = $2 million per year • Salesperson = $5 million per year Note that each defined sales volume will vary widely based on numerous factors, but let’s use these as a baseline for understanding and comparison. If each group is running at 100% efficiency, that means that it has no loss of time for any delays, errors, or problems, which is an impossibility. Here are typical examples of lost time measured by time per day that TDC finds the most common. • Designer/technician looking for missing or current information, the lag time between projects from stop to start of the next, and work interruptions by salespeople and customers are easily an hour per day, equating to 12.5%. This inefficiency loss is at least $250k per year with just one hour of daily loss. Survey your design group to see how much time they waste, such as answering questions from salespeople about job information. • A salesperson is not performing sales tasks but is instead trying to find critical information within the company to find essential information, such as the ever-changing delivery schedule, a requested quote, product information, or technical details from a designer or technician. Typical lost time on the phone or searching multiple apps on the computer per day is greater than two hours, which is 25% of the day, so 25% of 5 million = $1.25 Continued next page
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