Danie Vermeulen: Recession-proof your business

During the "good times" it's easy to forget that New Zealand businesses can tolerate all sorts of unhealthy and cash-consuming factors: Inefficient processes, sub-standard customer service, excess inventory levels and other costly practices.

These practices are largely invisible, unmeasured and ignored, with their resulting costs absorbed or passed on to the end customers, who rarely complain about it. All this changes when an economy is in the midst of tough times.

The Kaizen practice "Lean" looks at the best way to produce your goods and services through the removal of waste.

There are at least 10 Lean ways to help recession-proof your business.

1. Go to your gemba

Gemba is a Japanese term meaning "the place where the truth can be found" - your business's value proposition. So spend as much time as possible in the place where work takes place, or where real value gets added. This could be a factory floor, an office where customer orders or complaints are dealt with, a hospital emergency department, a retail check-out counter. Managers especially need to get out of their offices to see for themselves which part of the processes can be improved.

2. Make sure cash is king

Ensure you have a healthy cash-to-cash cycle and continuously find ways to improve it. Avoid excessive raw material, work in progress and finished goods inventory because that only ties up your cash flow. Negotiate minimum/more frequent delivery orders, maximum payment terms with suppliers and minimum payment terms for customers. Be vigilant with your accounts payable and accounts receivable processes.

3. Keep up your quality

Focus on good value at the least cost and make sure your customers know this. This means the business continuously strives to become more efficient but you never compromise your quality as a result. Note that this is very different from "being cheap" or skimping on quality. Customers will be able to tell the difference.

4. Supply only what customers want

Reduced demand should result in corresponding reduced production. Respond only to real customer demand. Resist the temptation to build unnecessary stock or bring in unneeded inventory. Instead, flexible quick responses will result in fewer back orders and higher availability of what customers really want and are willing to pay for.

5. Continuously improve products

Use down times to involve employees in rationalising and helping redesign the business' products/services. Multi-disciplinary employee focus groups can brainstorm new features. Focus on ways to standardise material and components, to reduce the time that it takes to develop new products. Also, be realistic and cull non-performing products.

6. Continuously improve processes

Lean looks to produce more with fewer resources. Down times are when to involve employees to identify and implement improvements to all your core and support processes to eliminate waste, increase "flow" (operation streamlining) and standardise. Also involve them in helping develop or improve simple and practical procedural instructions or "one-point-lessons" to eliminate frustrating and time wasting activities.

7. Strengthen strategic relationships with your suppliers

Rationalise suppliers to reduce the number supplying similar products, thereby reducing administration. Negotiate contracts with your strategic suppliers to increase the frequency of delivery and reduce minimum order quantities. If you have good in-house Lean expertise you can also reach out to your suppliers to help them to identify and implement improvements.

8. Respect your people

Continuously train and retrain employees to use and apply key techniques. Identify the next layer with leadership potential and appoint them to lead small improvement teams. Support and reward them accordingly. This will ensure that your employees will remain focused, engaged, motivated team players.

9. Run a Total Productive Maintenance (TPM) programme

TPM is a new way of looking at maintenance. It involves as many people as possible in TPM for all machines and equipment to encourage ownership and appreciation and avoid costly unplanned breakdowns. It should also extend the lifespan of the equipment, so pushing out replacement cost.

10. Shorten your supply chains

A symptom of "good times" we have been seeing is companies' deciding to "stretch" their supply chains to extend into regional and global markets. The major driver for this is usually the potential savings from using overseas low-cost manufacturers. But these long supply chains become costly because of falling exchange rates, rising transport costs, multiple handovers, high inventory levels at multiple locations and quality assurance challenges. It may be worth considering if it makes sense to manufacture and source locally as much as possible, especially when the business is committed to the Lean way.

* Danie Vermeulen is chief executive of Kaizen Institute New Zealand. Kaizen is a Japanese philosophy that focuses on continuous improvement.