building business value toolkit

Building Business Value

TOOLKIT

northrupcpa.com816 Courthouse Peak Montrose, CO 81403

by C. Lynn Northrup, CPA

Building Business Value© Toolkit

1 © C. Lynn Northrup, CPA, CPIM

[email protected] www.northrupcpa.com

Table of Contents

1. The Building Business Value© Toolkit Overview 2 2. Accounting and Finance Checklist 3-8 3. The Credit and Financing Checklist 9-13 4. Basic Bank Lending Guidelines 14-15 5. Management Cost Reduction Checklist 16-19 6. Marketing and Sales Checklist 20-24 7. Engineering and Development Checklist 25-26 8. Operations Cost Reduction Checklist 27-48 9. Other Areas Checklist 48-49




Overview The Building Business Value Toolkit© is a checklist focused on prudently managing a business. It occurred to me that most CPAs, executives, and managers could make great use of checklists and reminders on ways to reduce costs and improve efficiency and effectiveness. Why not prepare a toolkit to help business owners and entrepreneurs manage and add value to their business. The framework provides checklists for the primary functional areas to help stimulate ideas for reducing costs and streamlining the business. One factor in that is addressed in the toolkit is the difficulty in obtaining financing. It was essential to provide guidance on the factors used by bank officers to evaluate credit and make loans. This will help business owners and entrepreneurs better understand the questions to expect when applying for a loan and securing financing. The credit and financing checklist is a fairly comprehensive list of questions and ideas. Regular banking financing is typically the option for most businesses. In those instances where it might not be an option, there is a list of alternative sources of capital and funds. The checklists will not cover every possible situation. This list of potential ideas is endless, but I had to stop somewhere. A point of emphasis is the importance of sales and marketing. It is critical to redouble your effort to sell and seek additional market penetration. Another area requiring focus is cash conversion efficiency. Increasing the cash conversion cycle is critical and can be the difference between survival and bankruptcy. Apply and use the checklists as a tool to build the value of your business.




Accounting and Finance Checklist General

1. Conduct a value stream process flow analysis/ of all paper flowing through the accounting department both in flow and out flow. Challenge each step and each report to determine if can be eliminated or if it can be simplified.

2. Brainstorm the value stream process flow analysis to assess if we are achieving the necessary results at the lowest cost?

3. Gather all forms and ask the following questions: a. Can it be eliminated? b. Can it be simplified? c. Can we reduce the number of copies? d. Can some data be preprinted? e. Can we use standard forms?

4. Evaluate all the equipment being utilized in the back office and determine if it is needed and what can be eliminated.

a. This is especially true of copy machines since they use a lot of paper and the copies might not really be necessary.

b. Consider scanning and creating .pdf files for storage. c. Are all the fax machines necessary because faxes can be sent using PCs

5. Could some accounting operations be centralized to eliminate levels of staff? In some instances accounting operations can be outsourced. Examples include:

a. Payroll b. Accounts Receivable c. Accounts Payable d. Sales analysis e. Inventory management

6. Conduct a work simplification program and engage in a process of assessing all business processes to streamline each work process. Examples of questions include:

a. What is the purpose of this process? b. Why is it necessary? c. Where should it be done? d. Who should do it? e. How could it be done to achieve better results?

7. Establish a committee with the primary purpose of stimulating cost reduction ideas and coordinating the cost improvement ideas.

8. With each report ask the following questions: a. Can it be eliminated?




b. Can it be simplified? c. Can it be issued less frequently? d. Can the number of copies be reduced?

9. Evaluate the performance of all employees and make a determination if some positions are unnecessary and can be eliminated?

10. If clerical workloads are uneven, could workflow techniques be used to spread the load? In some instances temporary employees could be used to handle peak workloads.

11. Place an emphasis on cross-training so that at least two individuals are trained to perform each job, particularly critical operations. This helps to minimize confusion and disruption during vacations and unforeseen absences.

12. Consider if there are opportunities to replace marginal employees with more productive workers.

13. Consider tighter expense controls on both the amount of expenditure and on the levels of authorization.

14. Review all of your computer configuration and related software to determine if you are utilizing the most cost efficient approaches to processing data. There have been significant advances in tools and applications that could reduce costs and improve the quality of information to help manage the business. Many of the new tools involve the application of real-time data that can provide a competitive edge.

15. The risk of fraud has been increasing with the advances in technology. Accordingly, have a specialist in internal control review your vulnerability to fraud, theft, and embezzlement.

16. Review all overtime being paid and make sure all overtime work is properly authorized. 17. Consider if you are overpaying for lower-level positions because of length of service. In

many instances employees have a build-up in salaries and wages because of continuous merit increases relative to the level of job contribution and value to the company.

18. Perform budget variance analysis and period to period analysis of expenditures to pinpoint areas where costs may be out of line. Brainstorm these analytical reviews for potential opportunities for cost reduction.

19. Make sure you are taking advantage of accelerated depreciation including all Sec. 179 deductions.

20. Consider utilizing leasing as an option for adding needed capital expenditures versus purchases since it could have an impact on cash flow and availability of lines of credit.

21. Give consideration to modifying the length of the work week by starting later on Mondays or ending earlier on Fridays. It might be possible to reduce the number of hours worked each day.

22. Consider utilizing a cloud accounting system and a virtual advisor/CFO which could improve the effectiveness of the financial management of your business. There are a




number of new digital tools that work well with cloud accounting systems such as receipt documentation and performance measurement dashboards.




Credit and Collection 1. Check to be sure that your credit procedures are flexible enough to allow adequate time

to regularly check on your customers’ credit standing. 2. Does your follow-up system automatically signal when invoices are not paid on time so

appropriate steps can be taken in a prompt fashion. 3. If you are providing special dating or credit terms, review the number of transactions

currently involved and the amounts compared to past years to make sure you are not overextending credit.

4. Consider charging interest to customers who do not pay invoices on time. 5. Implement enforcement actions on customers who take unearned cash discounts. 6. Make sure that salespeople are instructed to inform the credit department of any change

they spot in their customers’ business that might affect credit or collections. 7. Consider outsourcing accounts receivable accounting to improve effectiveness and

enhance cost control. 8. Eliminate sending out monthly statements. Customers who want them can receive them

upon request or elect to receive electronic statements. 9. Investigate the new scanning software and equipment that will allow you to direct deposit

your checks into your bank accounts without having to prepare a deposit slip. 10. Consider utilization of a lock box to speed up cash flow. 11. If your cash flow is tight, consider factoring your receivables. 12. Make sure that credit memos for price adjustments, returned material, and erroneous

billing are issued promptly to avoid giving customers an excuse for holding up payment. 13. Hand over delinquent accounts to collection agencies so customers know you are firm

with your collection procedures.




Customer Service 1. Incomplete or incorrect information on customer orders create delays and added expense.

Make your ordering instructions and policies are clear and understandable. When possible let customers submit orders on-line to speed up the process and improve the accuracy of data.

2. Reduce the time between the receipt of orders and preparation of invoices. The faster the billing cycle the quicker the cycle the faster it will result in increased cash flow.

3. Consider channeling all inquiries on shipping dates, pricing, and billing to one individual to avoid interruptions. Make sure that this individual has quick access to all the necessary data.

4. When responding to customer questions and inquiries use e-mail to provide both speed and documentation of your response.

5. Reevaluate your billing process to see if you can eliminate or simplify the paperwork and documentation.

6. Consider establishing a minimum dollar amount for orders to eliminate high-cost small orders. You can also consider instituting a minimum billing charge or charge a service charge for orders under a certain amount.

7. Evaluate your staffing levels to see if under present conditions, some positions could be eliminated.

8. If possible, consider replacing marginal employees with more productive personnel. 9. Establish a level of standard output on expected output and production from each

position. 10. Reduce the number of supervisors by restricting the workload. 11. Consider using lean work flow (process improvement) techniques to balance workloads

and where necessary use temporary employees to get through peak periods. 12. Investigate orders for repair and replacement parts. Are they being handled in the same

way as orders for complete products? Should they be handled by special personnel and by utilizing simpler routines?

13. Investigate the number of parts orders received from each customer to see if they are ordering in the most efficient manner.




Insurance 1. Some questions regarding risk management and insurance need to be addressed:

a. What is your company’s exposure to insurable loss? b. What is the maximum possible loss for each exposure? c. To what extent does current insurance cover these exposures? d. Could the maximum possible loss from each exposure be absorbed without

insurance or a self-insurance funded reserve? e. What existing risk exposures could be reduced or eliminated?

2. Investigate the possibility of reducing premium costs by getting quotes from multiple insurers.

3. Pay particular attention to coverage for high risk areas such as the following: a. Civil disorder b. Crime c. Product liability d. Officers and directors

4. Consider the deductible amount since a higher deductible may make it easier to obtain coverage or lower premium costs.

5. Utilize special purpose insurance carriers that concentrate on specific risks. 6. Evaluate the possibility of self-insuring for some low-risk exposures. 7. The cost of workmen’s compensation insurance depends on experience rating and the

classification of workers for premium purposes. Check to make sure that the business and employees as classified are actually engage in more hazardous work. If not you may be able to achieve some reduction in premiums.

8. Are you paying higher than necessary premium rates because of rating conditions that could easily be eliminated with very little cost?




Credit and Financing Checklist Cash is Critical

1. Cash matters more than profit. 2. Customers will tend to pay slower. 3. Develop a Building Business Value cash flow budget.

a. Document all necessary expenditures. b. Forecast all near-term cash receipts. c. Review and cut these expenditures to a survival level. d. Plan on stretching your cash and minimizing your expenses so you survive for at

least a 12 month period. e. Assume that you will not be able to secure financing from a bank.

4. Step 3 is a component of stress testing your business so you clearly understand the impact of liquidity.

5. Consider drawing down on interest bearing credit facilities to build a war chest of cash. 6. Negotiate aggressive credit terms with your customers and at the first sign that invoices

are late initiate firm collection efforts. 7. If customers think they can use you as a bank to finance their own cash needs, they will. 8. Reduce inventory levels as far as you can and then use a just-in-time fulfillment system

to keep business flowing. 9. If things get tight, consider reducing prices in the short-term, sacrificing some

profitability, to ensure there is adequate cash flow to fund the business. 10. From a risk management standpoint, make sure you understand the worst case scenario

and make your decisions accordingly. 11. Utilize a zero-based budgeting approach to review all costs (refer to other checklists for

cost reduction ideas) and refuse to spend unless it has real value to the business. 12. Reduce spending as much as possible and even go beyond it if that is what it takes to

survive. 13. One of the key elements of cash flow is getting sales in a competitive environment. This

means going the extra mile and putting forth more effort to get your share of the business. 14. Reevaluate credit terms and negotiate the shortest terms possible. 15. Determine which customers risk the potential of bankruptcy. There is a 90 day preference

period associated with bankruptcy (closer to 92 to 95 days). It is better to risk a potential preference action and have your cash versus attempting to avoid one. A bird in the hand is worth two in the bush.

16. When a customer is suspected of representing a potential bankruptcy candidate and you are the seller of goods, you should obtain proof of deliveries on all shipments made prior to 90 days and on all future shipments.




17. Bankruptcy law is beyond the scope of this checklist; however, being aware of the fact that there is a much higher risk of bankruptcy with customers is critical, so you need to be extra vigilant. Bankruptcy Warning Signs

1. Changes in payment habits. 2. A request for longer terms of sale. 3. Major changes in the management structure. 4. Layoffs and staff reductions. 5. Reduced access to accounts payable. 6. Returns of large amounts of obsolete goods. 7. Significantly large orders in excess of the normal order size. 8. Deterioration of financial results. 9. Bad press and publicity. 10. Excessive credit reference requests. 11. Checks that are returned for non-sufficient funds. 12. Taking unjustified deductions to delay payment. 13. Tendency to make payments only to critical vendors. 14. Attempts to revise credit terms. 15. Involvement of attorneys relative to potential bankruptcy.




Tax Opportunities 1. Evaluate the possibility of all tax credits i.e. research and development, job

creations, fuel tax, etc. 2. Recalculate estimated quarter tax payments. 3. Submit a claim for a quick refund if you think you may have overpaid estimated

taxes. 4. Carefully evaluate the application of accelerated depreciation and Sec. 179

deductions. 5. Consider conducting a cost segregation study to increase depreciation deductions. 6. Conduct an assessment of sales and use tax to determine if there is potential for

refund of overpayment. 7. Reevaluate real estate and taxes on tangible property to consider the

reasonableness of assessment and amount of taxes. Capital and Fix Asset Investments

1. Avoid acquiring fixed assets unless the equipment is critical to the mission of the company.

2. Consider leasing versus purchasing. 3. Determine if you have any equipment or property that could be sold and

converted into cash. 4. Do not get caught in a position of not acquiring a critical piece of equipment that

will provide a competitive advantage and may be necessary to secure that competitive advantage.

5. If you need capacity, consider acquiring used equipment that could be acquired for pennies on the dollar.

Working Capital

1. When managing accounts receivable it is critical to turn your receivables as fast as possible.

2. Another component of working capital is inventory. The faster you can turn your inventory the greater the increased in cash flow.

3. If you get into a pinch with accounts payable be sure to work closely with your vendors as they may be able to make some adjustments until you convert your receivables into cash or secure bank financing.




Working with Banks 1. Maintain a close relationship with your bank. 2. When economic conditions put banks into a defensive mode, they will be more

cautious about lending. Credit quality will be paramount and loan officers will have less flexibility.

3. Give the bank plenty of lead time regarding any loan or credit needs. Make sure the bank understands your situation and how you are dealing with the current economic situation.

4. Refer to Basic Bank Lending Guidelines that is a component of this toolkit. 5. The Eight C Rule:

a. Credit has to be good b. Capacity – can you pay back the loan c. Capital – money invested in the business d. Collateral – assets that will secured the loan e. Character – you f. Conditions – economy, finances, and anything that affects your business. g. Commitment - your ability and willingness to succeed. h. Cash Flow – can it support the business debt and expenses?

6. Questions the bank will ask: a. How much money do you want? b. How much have you invested or are you going to invest in the business? c. How will the loan be used? d. How long do you need to repay the loan? e. How will the loan be repaid? f. What collateral do you have to support the loan?




Other Types of Financing

1. SBA loans 2. Factoring 3. Government and State Lending Programs 4. Private Equity 5. Private Lenders 6. Insurance Companies 7. Cash Surrender Value of Life Insurance Policies 8. SBIC and Minority Enterprises 9. Venture Capital Firms 10. Industrial Revenue Bonds 11. Employee Stock Ownership Plans (ESOPs) 12. Joint Ventures 13. Leases 14. Limited Partnerships 15. Private Placement – stock or debt securities sold to a limited number of investors 16. Sale-and-Leaseback of Equipment

Final Comment Plan for the worst and hope for the best. You will not borrow your way out of debt. Focus your effort on selling and marketing because the cash flow from these efforts represents the way past difficult times.




Basic Bank Lending Guidelines These are basic guidelines that most commercial banks use to assess potential lending opportunities. The guidelines relate primarily to commercial and/or industrial businesses (retail, manufacturing, service, etc. exclusive of real estate development). Criteria will vary from bank to bank and shift based on each banks current appetite for risk. Cash Flow (Repayment Capacity): Banks typically require a Cash Flow Coverage ratio (CFC) of greater than 1.15 to 1.00 together with a track record (three to five years) of demonstrating the ability to sustain this ratio. Be prepared to provide your future ability to sustain this ration based on pro forma financial projections. If historical financials show that a borrower doesn’t possess this ability, a higher CFC can be estimated by defining specific cost savings or increases in revenue. These estimates need to be well documented and proven. Other possible considerations are lower debt service resulting from new credit facilities, and/or cost savings from new credit (excluding any new credit that lowers expenses or pays other obligations). Calculation of CFC provided as follows:

Operating Liquidity: Liquidity must be stable for at least a year and be sufficient to support at least 3 months of operating expenses. This can sometimes be mitigated by liquidity ratios such as the favorable quick/current ratios, A/R, Inventory, and A/P turn days. Balance Sheet Leverage: The ratio of unsubordinated debt divided by Net Worth plus Subordinated Debt should generally be less than between 1.2:1.00 to 1.75:1.00 depending on the industry. Margins: Gross and Net margins should generally be stable or improving and comparable to industry standards. Management: Management should show a history of being able to manage their business through economic




cycles. The management needs to be in place running the current business or a similar business for at least three years. This can be mitigated by the presence of experienced new managers or support from capable outside advisors. Equity: Borrowers need to bring some equity into a transaction. Typically at least 20 to 30% if its real estate and 75% for accounts receivable based loans or equipment. It will depend on the items and the situation. Owner Guaranties: Almost all transactions will have to have some sort of personal recourse in the form of guaranties to the business owners. Owner guaranties might mitigate one or more of the above items if the owner has a history of outside sources of cash flow and stable liquidity. Cash flow and liquidity are the most critical areas. If there is weakness in these two areas it will be difficult to secure a traditional loan. However, these items can be mitigated by guarantees combined with strong personal cash flow and liquidity.




Management Checklist

1. Have workloads dropped significantly without an appropriate reduction in the number of employees?

2. Here are some tips to avoid losing key employees: Ask employees to take an extra week’s vacation without pay. Ask employees to take 10 days off without pay over the next 3 months by doing

so one day at a time. They get to choose the days. Reduce your paid work week by 8 hours to 32 hours by starting at noon on

Monday and closing at noon on Friday. Reduce the paid workday by closing an hour earlier or opening an hour later.

3. Travel and entertainment Tips: Ask employees to more carefully evaluate the need for each trip. Eliminate most entertainment or substitute less expensive entertainment such as

less expensive restaurants and no spouses. Have employees fly tourist class and fly on off hours to minimize costs. Carefully check mileage allowances for reasonableness. Require receipts for meal expenses. Suggest the use of more modestly priced hotels.

4. Charge customers interest when their invoices are late (1-1/2% per month until the balance is paid).

5. Crack down on customers who take unearned cash discounts. 6. Cut down attendance and participation in conventions, tradeshows, and workshops,

seminars, and professional meetings. 7. Reduce the order size and demand that vendors provide the same level of service with no

service charges for orders under a certain amount. 8. Balance the savings from minimum inventories, reorder points and purchase quantities

against the possible delays in shipment. 9. Monitor the efforts of the purchasing people to ensure the best price and the best quality

from all suppliers. 10. If you have excess production capacity consider taking on subcontracts from other

manufacturers. 11. Can you sell the services of support staff to smaller companies in your area that might

need support? Some examples include HR, advertising and promotion, purchasing, engineering and IT support?

12. Review current plans for advertising and sales promotion to eliminate any marginal expenses, cut costs, and check themes in light of current economic conditions.




13. Double check your transportation costs, and, if you are paying incoming freight; verify that your vendors are shipping the cheapest way.

14. Update the company’s insurance coverage for all policies and check alternate sources to reduce premium costs.

15. Review your sales force coverage and concentrate it by eliminating marginal territories. Consider using independent reps to cover these areas.

16. Review all product lines to eliminate or minimize sales of marginally profitable or less product lines. You can offer these product lines on a special sale basis to clear them out of your inventory.

17. Establish a team to conduct a value stream analysis of all the company’s products. At a minimum the analysis should address the following:

Sales features that are not paying their way Identify excess costs due to over-design using target costing techniques. Evaluate the use of new materials and production methods that will reduce costs

and improve profitability. 18. The value stream analysis (business process improvement) methodology can and should

be applied to all areas of the business to minimize costs and improve bottom-line profitability.

19. A concept that is worth considering is flattening the organization and eliminating layers of management and supervisors across the entity.

20. One way of streamlining is by eliminating all of the “assistant to” positions through restructuring and increased delegation. With today’s technology, there should be no reason not to handle all your own communication. This also eliminates missed communication.

21. Are you overpaying for lower level positions based on the length of service of the job holder? In difficult times it might necessary to re-evaluate all these positions and adjusting the pay or salary levels for all these positions. While people may not like they might be willing to accept an adjustment rather than be laid off.

22. Investigate the possibility of a “sale/leaseback” method to raise or increase cash flow. 23. Initiate an employee suggestion programs with appropriate rewards for suggestion that

are adopted. 24. Have your internal control system assessed for vulnerability to fraud and

misappropriation of assets. 25. Can company outings and award dinners either be eliminated or minimized with an

acceptable substitute? 26. Review all overtime and tighten the policy on approval of overtime work. 27. Investigate the potential for using leased vehicles for individuals currently using personal

vehicles for business.




28. Should customers be charged for any services you are currently providing for no fee or cost? (Engineering, product service, sales promotion)?

29. If product catalogs or parts or service catalogs are being sent, review the mailing list to remove deadwood and duplication.

30. If you are providing company cars consider the practicality and advantage of extending the period of use prior to replacement.

31. Check your current product warranty allowances to determine if it could be made less generous without sacrificing sales?

32. Check all subscriptions to make sure that multiple subscriptions are warranted. 33. Ensure that all critical positions are covered by having at least two people trained to

perform each job. This can help minimize confusion and disruption during vacations and unforeseen absences.

34. Reduce car rentals by funneling all company car rentals through one rental firm to achieve high discounts available to high mileage users.

35. Consider a company-wide simplification programs. Have each supervisor and employee challenge every aspect of their job by asking the following questions:

What is the purpose of this job? Why is it necessary? Where should it be done? When should it be done? Who should do it? How can this job be done to yield better results?

36. Conduct walkthroughs of every area of your business to check and monitor activity levels.

37. Tighten expenditure controls from the aspect of who can authorize expenditures and the amount of expenditure. Guard against unrealistic controls that could prevent progress.

38. Review and approve all new employee hires and also all salary increases. 39. Are you taking advantage of all accelerated depreciation and Section 179 deductions? 40. Review all slow moving and obsolete inventory items to make sure they are being

deducted for tax purposes and to free up space. 41. Investigate the cost of utilities and consider all efforts to eliminate wasteful use of

resources. 42. Evaluate all key personnel relative to performance and ask the following questions:

Is his or her decision-making ability holding up? Is he or she focused on today’s problems? Has he or she planned ahead to meet all contingencies? Does he or she get the most from his or her people?




43. Establish a cost committee to stimulate and coordinate the application of all cost-saving ideas.




Marketing and Sales Checklist

1. Are you carrying marginal or unprofitable salesmen against future needs? You need to get them to improve their performance quickly or terminate them. Experience shows that you will rarely earn back the costs to carry them.

2. Revise the sales compensation plan to include expense performance as an element in determining total compensation. Consider offering a bonus to salespeople who improve their expense to sales ratios.

3. Increase the sales emphasis on the more profitable products. Evaluate the efforts between luxury items and economy items. You will sell more economy items during business slowdowns.

4. Delay or eliminate sales meeting and training classes that are not required to support the sales skills geared to today’s selling requirements.

5. Reevaluate the need for sales brochures and display materials to address only current and short-range needs.

6. Hire sales people in those geographic areas that are the least expensive areas to supervise and have the greatest opportunity for potential returns. Eliminate the luxury of hiring in marginal geographic areas.

7. Eliminate entertainment and substitute less expensive types of entertainment (lunches versus dinners, less expensive restaurants, no spouses, etc.).

8. Establish a minimum dollar amount for orders to cut down on high-cost, small orders. Also, consider a minimum billing charge or a service charge for orders under a certain dollar amount.

9. Carefully evaluate the need for each sales trip, particularly those of short duration such as periodic checkups on field sales managers or salespeople, and visits to customers unless you anticipate that there are issues or problems.

10. Evaluate your sales organization to eliminate unnecessary layers of management. Arrange for salespeople to get required information directly from the departments that provide the information.

11. Increase the amount of time your sales people can spend face to face with potential customers by cutting paperwork, providing assistance with scheduling sales calls, and making appointments.

12. Tighten controls over expenditures in terms of who can authorize them and the amount of the expenditure. However, be realistic and do not divert key people from critical projects.

13. Review all product lines to eliminate or suspend sales of marginal value. Do the same analysis for customers to drop unprofitable and slow paying customers.

14. Cut down on attendance at conventions, trade shows, and industry meetings. Eliminate or sharply curtail company exhibits at such events.




15. Reduce the amount of time you and your key people spend on unnecessary details and refocus the effort on projects that are of critical importance to the company and are more likely to generate faster cash flows.

16. Are sales people working closely with production and inventory control personnel to ensure that sales efforts are directed toward selling products on hand to reduce inventory and conserve cash?

17. Should sales people be given special instructions and/or incentives to move slow moving stock currently in inventory to generate cash flow?

18. How could special sales efforts provide incentives customers to take more goods into their inventories now – with or without price incentives?

19. Are you prepared to shift gears when conditions change? Have you planned ahead to establish what steps you will take if demand increases or drops off?

20. If you sell through wholesalers or retailers, should some of them be cancelled or replaced bases on sales volume?

21. Companies tend to allow costs to rise disproportionately relative to the amount of revenue being generated. Consider performing updated analysis to evaluate the cost of sales operations to determine if substantial savings can be generated.

22. Are there new and promotable applications for your products? Some things to consider are to solicit suggestions from customers, suppliers, sales people and other employees.

23. If you supply product, parts or service catalogs, carefully review the list of recipients to eliminate deadwood, and supply only “one to a customer.”

24. Could headquarter or field supervisory staffs be restructured to reduce overhead costs? 25. Could sales expense be reduced without sacrificing sales using manufacture’s

representatives to cover certain sales territories? 26. Conduct the necessary training meeting in geographic areas requiring the least travel by

participants or hold virtual meetings using available internet tools. 27. Bargain with hotels to include the meeting rooms on a complimentary basis. 28. Have sales people spend an entire week in one physical location to cut down on travel

costs. 29. Eliminate reimbursement of travel costs for potential recruits. 30. Avoid paying the moving costs of a recruit to another location. 31. Increase the frequency when reviewing compensation paid against the results achieved

and then develop yardsticks to avoid over-compensation. 32. Consider increased bonuses or commissions on high-margin items and reduced awards on

lower-profit items. 33. Review the bonus structure and consider whether it is too high or too low.




34. Thoroughly review cell phone and PDA arrangements to make sure that the best rate plan is in place and that phones paid for by the company are limited only to those people who actually need them to perform their sales function.

35. Funnel car rental costs through one car rental agency to obtain better rates. 36. Adhere to a brief quotation only policy to eliminate the cost of pre-sale engineering or

detailed engineering proposals. 37. Consider making each sales person responsible for his or her own territory’s profit in an

effort to gain better control over costs. 38. Evaluate the performance of key management personnel to make sure they are holding up

under recessionary conditions. Ask the following questions in reviewing key people: Are his or her decision-making abilities holding up? Are his or her efforts focused on dealing with today’s problems? Has he or she planned ahead to deal with contingencies? Does he or she achieve maximum performance from their personnel?

39. Check your current product warranty documentation to determine if it could be made less generous without sacrificing sales. Conversely, would making it more generous result in increased sales?

40. Replace annual sales meeting with less expensive regional meetings. 41. Conduct a value stream (business process analysis) analysis of all back office paperwork.

Can it be eliminated, simplified, shortened, or made more useful? Is technology innovation linked to paperless systems being utilized?

42. Are technology systems such as CRM systems (customer relations management) and sales management tools being utilized to their fullest extent?

43. Carefully review the need for all sales contests and incentives. If desirable, could less costly awards be offered?

44. Determine if salesmen are checking into hotels earlier than necessary and incurring an additional day of expense. Also determine if they fail to check out before the establish checkout time on the day of departure.

45. Are salesmen staying at hotels or motels near their planned sales calls to minimize local transportation costs?

46. Could you save money utilizing a “guaranteed room rate plan?” 47. If you reimburse salesmen on a mileage allowance basis for the use of personal cars,

should you re-evaluate the possibility of providing a company car? 48. If you are providing a company car, does the salesperson report and reimburse the

company at some established rate for personal use of the vehicle? 49. Are you checking the routes being followed by sales people to ensure that the most

economical routes are being utilized?




50. Are you surveying meal costs in principal cities being visited by sales people to determine the extent of any padding of expense reports?

51. Here are some key ratios to monitor sales expenses: Expense to sales ratios. Average daily living costs (hotel, meals, etc.). Entertaining expenses. The costs of selling to each customer versus the sales volume received from that

customer. 52. Reevaluate all planned advertising and sales promotions in light of current economic

conditions. 53. Reevaluate all advertising and direct mail campaigns to ensure that qualified prospects

are being included. Is there efficient and fast follow up and is there a viable payoff in increased sales?

54. Analyze the costs of reaching new prospects using current methods versus the cost of alternative methods and the expected increase in market penetration.

55. Consider reducing or eliminating institutional advertising. 56. Replace national ads with less expensive local advertising in areas which offer the

greatest potential. 57. Investigate the possibility of pinpointing space advertising by using regional editions of

business periodicals. 58. Could you reduce advertising costs by teaming up with a manufacturer of a related

product? 59. Use your packaging as an ad medium by imprinting slogans on shipping cartons or

enclosing flyers with your packaging. 60. Consider using cartons that can double as displays at the point of sale. 61. Evaluate your advertising and sales promotion by considering smaller ads, using black

and white instead of color, and fewer insertions. 62. If you are advertising in more than one magazine directed toward a specific industry,

consider cutting back to the leader. 63. Rather than advertising on a monthly or weekly basis, consider cutting back to special

issues. 64. Eliminate marginal mailing lists from direct mail campaigns. 65. If you utilize outside direct mailing lists, double check to determine how recently they

were updated. 66. If you supply sales promotion material to distributors, check to see that it is being used,

not stored, and if free, consider charging for it. 67. Eliminate or charge for “point of purchase” displays. 68. Analyze the pay back from cooperative advertising programs.




69. Advertise and promote only the most profitable products and eliminate any expenditure on marginal items.

70. For product catalogs and product specification sheets consider reducing costs by limiting distributions, going to less expensive binders, and reducing the use of color.

71. Double check the pay back from current ad campaigns for radio and TV advertising. 72. Reevaluate how you use your web site and search engine optimization. Also consider

using a blog and podcasts to promote your products and services.




Engineering and Development Checklist

1. Carefully evaluate all current projects to determine if any should either be eliminated or postponed in light of current economic conditions.

2. Consider redesigning parts or components that have a high reject rate. 3. Redesign parts and components when products are placed into service. 4. Redesign products for savings in materials handling, packaging, and shipping. 5. Redesign products so that fewer models will fit more applications. 6. Perform feasibility studies regarding the possibility of cutting the cost of current

products. For example, can you substitute less expensive materials and provide for simpler production processes in addition to eliminating marginal product features?

7. Could you suggest economy models of a current product that could be sold at lower prices?

8. Request suggestions on new applications from customers, suppliers, and salespeople. 9. Are your highest paid and highly skilled engineers being used to their best advantage?

Perhaps their day is being filled with routine chores that could be performed by technicians or less highly paid employees. Another area to check is determining if your engineers are spending too much time “troubleshooting” in either your own or in customer’s facilities?

10. Could you reduce the number of engineering supervisors by restructuring your organization?

11. Carefully evaluate the contributions of all non-professional employees to determine if jobs can be combined or eliminated.

12. Have workloads dropped substantially without a corresponding reduction in the number of employees?

13. Are competing products analyzed on a regular basis to compare their form, features, material components, together with production and assembly methods?

14. Consider contracting out new product development and other engineering research to outside organizations. These types of arrangements can save smaller manufacturing companies both time and money.

15. Set up value stream (process improvement) analysis teams to perform “value analysis” of the company’s products. The analysis should include:

a. Sales features that aren’t paying their way. b. Uncovering excessive costs due to over-design. c. Uncover new materials and production processes that can reduce costs.

16. Minimize attendance and participation at professional conventions, meeting, etc. until economic conditions warrant and justify attendance.




17. Continually evaluate the possibility of using newly developed materials emerging from government research.

18. Minimize the usage of amounts of materials and supplies used by engineers. 19. Consider renting testing equipment for particular projects that are of short duration. 20. Consider paperless storage of data. Scanned and digital information takes up less space

and fewer storage cabinets. It is also easier and faster to access it when needed. 21. Consider utilization of knowledge management systems to minimize duplicate effort and

availability to entity-wide information. 22. Tighten expenditure controls on both the amount and on who can authorize requisitions.

Utilize a regular program to update the knowledge of your engineering personnel to avoid engineering obsolescence.




Operations Cost Reduction Checklist General

1. There is always a factor of “make work” that are present in production operations so that when business slows down there is an effort to avoid the possible loss of skilled workers with a lay-off. Here are some ways to cut labor costs and still retain key people:

a. Ask employees to take an extra week’s vacation without pay. b. Ask employees to take 10 days off (or whatever) one day at a time over the next

three months and let them choose the days they want. c. Ask employees to take “long weekends” by adding either Monday or Friday to the

weekend period. 2. If the facility has extra capacity, consider performing subcontract work for other

manufacturers. Is there a possibility of making parts or components that are currently being purchased?

3. If clerical workloads are uneven, could personnel be reduced to the level necessary required to handle the lower workloads, using temporary or contract employees to cover peak periods?

4. Could the number of foreman or supervisors be reduced by restructuring the organization?

5. As the labor supply loosens up, can you replace marginal employees with more productive workers?

6. Tighten up on all overtime being paid including the policy on overtime approvals. 7. Consider replacing older, less efficient equipment and obsolescent machines with more

up to date equipment. 8. Reevaluate the performance of all employees and determine if any positions can be

eliminated. 9. If there is any equipment or assets that are not being used, consider selling them to raise

cash. 10. Can indirect labor costs be reduced by looking at the amount of time spent on fill-in jobs

like housekeeping, machine repair, etc. during slow periods? 11. Have you consider the application of cellular manufacturing concepts to take advantage

of using cross-trained worker? 12. Have you considered taking re-work operations out of the regular production line to

minimize bottlenecks and wasted motion? Re-work could be handled by a separate work center.

13. Enhance your safety work program to cut down on accidents. In lean manufacturing applications safety has be the 6S of the 5S program.




14. Are you utilizing highly paid skilled workers to their best advantage? If their time is being filled with routine tasks that could be performed by lower-level employees consider readjusting the job routing.

15. Reevaluate the use of numerical and programmable machine operations to reduce manpower and enhance process flow. This can result in reduced set-up times (SMED- Single Minute Exchange of Dies) and reduce inventory stacking up at bottlenecks.

16. Can replacement parts stockrooms be moved closer to production areas to reduce unnecessary movement and wasted time?

17. Can equipment relocated to improve process flow and speedup cycle times? 18. Have sub-assembly operations been reviewed to see if costs could be reduced by using a

contract manufacturer vendor? These operations can be set up to work on a JIT delivery basis.

19. Carefully evaluate all set-up and changeover processes to minimize downtime and speed up cycle times. Utilize the use of computer based instructions for performing set-ups.

20. Determine if supervisors are performing routine work instead of handing it off to lower paid personnel.

21. Evaluate all supervisory responsibilities to avoid any confusion or overlap. 22. Determine if job descriptions are up-to-date for all key people. Ascertain that all the tasks

are being performed by the people best suited for the job. 23. Have all reports and associated paperwork been reviewed to determine if it can be either

eliminated or simplified? 24. Review all machine run times for reasonableness and to ascertain that run times are being

maintained. 25. Evaluate the need for workers to go get supplies or to stage the next job in an effort to

minimize the unnecessary travel time. Unnecessary employee traveling time is a waste. 26. Have a gain sharing or other work incentive programs been considered and evaluated? 27. Evaluate the production schedule to avoid the loading of low-volume jobs to minimize

excessive changeovers and set-ups that disrupt the production process and increase cycle times. These low volume orders can frequently be scheduled when there is machine availability or produced on other equipment to avoid bottlenecks.

28. Do you utilize Sales and Operational Planning techniques to avoid getting caught when volume suddenly increases?

29. Consider the application of lean manufacturing techniques to increase throughput. 30. If there is excess capacity, utilize Theory of Constraint approaches to pricing and

breakeven to fill up the plant. 31. Conduct “walk through tours” to check on levels of production activity. 32. Evaluate and reconsider all time consuming paperwork activity and processes to identify

possible efficiencies.




33. Deploy the concept of internal and external setup techniques to speed up throughput. External setup procedures are conducting while the machine is running in contrast to internal setup when the machine is stopped.

34. Use poka-yoke techniques to mistake proof as many operations as possible. The fewer the mistakes, the lower the cost.

35. Arrange for cross training of as many people as possible to avoid possible disruptions to the process flow and to minimize the required number of workers.

36. Tighten down on all expenditure controls both as to who can authorize and the amount of the authorization. Try to achieve the right balance to avoid diverting people from key tasks.

37. Assess the need for all irregular jobs such as office clerks, secretaries, maintenance people, and utility helpers.

38. Consult with your suppliers and vendors on more effective ways to use materials and equipment.

39. Carefully evaluate the controls over scrap and waste. Make every effort to minimize these costs through the use of effective quality control techniques.

40. Make sure that you are getting the best prices for all scrap and waste materials. 41. Have purchasing check into the possibility of obtaining better material yield by utilizing

different sizes of stock.




Material Handling 1. Make a detailed study of traffic flow throughout the facility. A systematic analysis of

current flow patterns will provide a basis for major improvements. Here are some tips on what to look for:

a. Identify the types and amount of items moved. b. Specify the source and destination of the movement. c. Measure the distance traveled. d. What type of equipment is used? e. What is the travel time? f. How much delay time is involved? g. Indicate the number and classification of workers involved and the amount of

time required for each move. 2. Develop a plant-wide layout to improve the traffic flow and storage locations. Minimize

the number of times material is handled and the travel distance involved. 3. Identify all of the specific manual operations that could be done using mechanized

equipment. Pay special attention to excessive employee accidents because of manual handling; manual tasks related to moving material weighing more than 50 pounds; tasks requiring two or more employees; and material handling tasks being performed by employees who should be performing skilled work.

4. Focus on planning and scheduling to achieve better utilization of your people and equipment. This effort will minimize the number of people standing around waiting or working overtime to meet a specific deadline.

5. Assess your present material handling equipment: a. What equipment is more than 10 years old? b. Do you use a wide variety of repair parts requiring a high inventory of spare

parts? c. Is preventive maintenance on equipment performed at regular intervals? d. How far does mobile equipment have to go for servicing?

6. Could material handling be simplified by moving operations closer to the preceding or subsequent operation? Could material handling be enhanced by using mechanized equipment versus manual labor?

7. Consider redesigning traffic areas to provide adequate aisle clearances and turning space for material handling equipment.

8. Contact your suppliers and review their catalogs to obtain the latest ideas relative to the types of material handling equipment currently available.

9. Move and store “unit loads” on pallets to reduce the number of handling operations between processing, storage, and delivery. Establish the quantity of units that is easiest to handle and ship as a single pallet load.




10. Consider using intermittent input or output loads by inserting accumulator devices. 11. Perform inspection, weighing, testing, and other similar operations without moving goods

out of the production line process. 12. Clearly label and identify all items moving through the production process to prevent

losses, delivery errors, and mistakes. This also helps to reduce extra handling. 13. Dispose of scrap mechanically by using chutes, conveyors or other devices to move it

from the source directly to storage locations. 14. Use oversize boxes to supply assembly stations with all the necessary components at

once. The handling, storage, and pre-positioning of components for an assembly operation can be simplified by designing a single large container to hold practical quantities of components. Smaller containers can be designed to fit into the larger container for orderly supply of smaller parts.

15. Kan ban (parts containers) signals can be established to trigger the delivery of components to the assembly operation on a just in time basis.

16. Get attachments for your fork lift trucks to increase the use and application of these tools. 17. Use explosion-proof lift trucks to move stock in areas where a spark could cause a fire or

an explosion. 18. Consider using a fork lift truck as an emergency elevator. This can represent considerable

savings in handling and waiting time. 19. Consider using pallet jack trucks for pulling heavy loads in close quarters. 20. Consider using vacuum handling attachments on lift trucks to eliminate squeezing and

gouging material and to permit closer stacking in storage. 21. Use air cushion pallets to safely move fragile or volatile materials over flat, smooth

floors. 22. Use shock absorbing pallets to store and move easily damaged goods. 23. Use snap-on racks to permit stacking pallets loaded with crushable goods. 24. Utilize radio remote controls for application with overhead crane operations. 25. Utilize organized drawer storage cabinets for tools and instruments that are clearly

labeled for faster and quicker access. 26. Consider the use of self-leveling work positions/benches to eliminate workbenches. Two

work positions can be used at each machine operator station. One position is used to store and dispense parts to be machined and the other to receive, store, and protect completed work. By putting casters on the work positions, you can use them as carts to move full loads of completed components between operations.

27. Put workers on wheels to achieve faster movement of personnel from one job to another. Well-engineered personnel carriers can help to reduce plant operating overhead by putting employees on wheels to cover distances within the facility. This technique will also allow for faster delivery of minor loads of material, supplies, and tools.




28. Evaluate the possible re-design of the exterior configuration of products for easier and faster handling to reduce handling cost.

29. Disassemble or “knock down” products to achieve more economical handling and shipping.

30. Ask suppliers to deliver goods in package sizes or assortments best suited for the handling equipment and storage facilities of your operation.

31. Purchase component or supplies in reusable containers that can be used for in-process or outbound handling.

32. Consider utilizing larger and fewer storage buildings to achieve lower storage and handling costs. There are a number of low cost options available.

33. Make sure that your sheds and other storage areas are capable of permitting the use of mechanized handling equipment.

34. Where needed, consider the use of collapsible rubber tanks for liquid storage because they are simpler and less expensive than elevated metal and plastic tanks.

35. Use protective closures for exposed loading docks. 36. Use an accordion conveyor to load and unload trucks around obstructions. 37. Use hand trucks and hand operated pallet jack lifts where space does not permit the use of

larger equipment. 38. Use one fork lift truck to hoist another fork lift into a freight car if your track-side dock is

at ground level. This technique allows the truck in the freight car to transfer material out to the ground level truck. This technique saves hours of labor and achieves a reduction in demurrage charges.

39. Try to equip your production areas with small chutes, conveyors, and lifting devices. This type of mechanization can achieve significant reductions in labor costs.

40. Utilize continuously activated equipment to move work-in-process directly from one operation to the next with a minimum of handling.

41. Consider implementing an incentive award system for operators, drivers, and material handlers to develop cost-cutting suggestions to improve material handling.

42. Consider standard equipment when purchasing material handling devices. This will allow for the stocking of fewer spare parts, facilitating training of operators, and providing for greater interchangeability of equipment and operators between departments.

43. When selecting material handling equipment, do it based on unit handling costs versus the life of the equipment, rather than on the initial cost of procurement.

44. Check the maintenance costs of materials handling equipment. What is the more economical method – using your own maintenance people versus outside repair people?

45. There have been significant advances in the types of material handling equipment. The types of application include robots, bar coding, RFID devices, and other innovations that make tasks faster, easier, and less costly.




46. Check with manufacturers of material handling equipment for suggestions on how to improve your material handling operations.




Purchasing 1. There has been a tendency to minimize vendors and stay with proven sources. Because of

economic factors, consider a new attempt to locate alternate sources for major purchases at lower prices.

2. Even though the basic price might be the same, could you save on freight costs by buying from suppliers located nearer to your facility?

3. If you are buying parts or components made to your own specifications, would the savings from using standard components offset any negative issues associated with switching?

4. If you are purchasing the same item from more than one vendor, could you obtain lower prices by single sourcing and establishing firm supplier relationships? This could also be helpful with securing higher quality and more reliable delivery schedules associated with just in time schedules.

5. Evaluate the order quantities that you purchase to avoid building excessive inventories. 6. Should you reduce the size of your orders even at the expense of a few more emergency

shipments? 7. Do you check to see that vendors are selecting the cheapest and most reliable methods of

shipment? 8. Are vendors increasing costs (transportation, receiving, paperwork, etc.) by making

numerous part shipments against your orders? 9. Are vendors consistently shipping quantities in excess of the amount ordered? Even

though the quantities are relatively small, should you refuse to accept the overages or refuse to pay for the over shipment?

10. Consider making parts or components that you have been purchasing. 11. Are you notified promptly of changes in sales orders so you can make appropriate

adjustments? Consider implementing a process of sales and operational planning. 12. For maintenance supplies, tools and low-cost parts consider outsourcing as a way to

maintain accurate and required levels of inventory and eliminate the associated paperwork and accounting with purchasing and doing this work in house.

13. For all part and components purchased, recheck to establish that the possibility of alternative suppliers and faster delivery times to minimize the level of inventory investment.

14. Where appropriate are you utilizing economic order quantities (EOQ) and do you regularly check these order quantities?

15. Consider establishing a distributor-owned warehouse contained within your facility to supply items where you normally order in large enough quantities to make the arrangement worthwhile. These arrangements reduce accounting and paperwork and




minimize obsolete and excessive inventory investment because you are only paying for what you need at the time it is required.

16. Consider establishing a blanket purchase order system to cut material and clerical costs. This can be applied to high volume, low value standard purchases such as MRO (maintenance, repair, and operating supplies) and stationary supplies. This frees up purchasing to spend more time on high priority items.

17. Pay attention to critical or more expensive items by utilizing an ABC inventory management approach to control and contain costs.

18. Take advantage of suppliers and their knowhow to determine ways to improve processes, quality, and potential cost saving ideas that are being utilized by their other customers within the industry.

19. Order standard maintenance, repair and operation supplies over the telephone, by fax, or by e-mail to save on preparation of purchase orders.

20. Evaluate your supplier’s quality control and inspection procedures to see if it is possible to eliminate or cut down on incoming inspection.

21. Review the staffing of the purchasing department to avoid overstaffing. Has there been a significant reduction in workload without a reduction in personnel?

22. Re-evaluate all forms and paperwork to determine if anything can be eliminated, streamlined, or simplified?

23. Consider establishing a “value analysis” of all of the company’s products and systematically review:

a. Sales features that don’t pay their way. b. Uncover excessive costs due to over-design. c. Look for new materials and production methods that can cut costs. d. Ask the question – are we achieving the needed results at the lowest cost? This

can be applied to all products and any area of responsibility. e. In line with the “value analysis” approach, consider utilizing “target costing”

concepts and lean work flow as analytical methodologies and techniques.




Inventory Control 1. Carefully consider the hidden cost of carrying inventory. These hidden costs include

space, insurance, taxes, obsolescence, damage, the cost of capital, and other associated costs. These costs run somewhere between 25 and 30 percent of average inventory value on an annual basis. Have specific inventory levels been established in relation to with current sales levels? Utilize an ABC classification approach to inventory management whereby the A group usually represents 10% to 20% by number of items and 50% to 70% of projected dollar volume. Focus efforts on controlling and managing the A items with much less effort on the B and C items.

2. Have you recently calculated inventory/sales ratios to highlight areas of excessive investment? Pay special attention to work-in-process items because this category will tend to become inflated to cover up problem areas within the manufacturing area. Could excessive levels of stock be reduced through special sales effort?

3. Look at all areas of potentially excessive inventory levels. Can material be returned to vendors even with a small penalty? Can they be sold through other than normal sales channels?

4. Have all obsolete and damaged material been cleaned out? 5. Repair and replacement parts frequently represent opportunities for major savings since

they tend to receive less attention than other components of inventory. An analysis of amounts on hand versus current usage levels will provide good insight on areas of excess quantities.

6. Are production overruns automatically put in parts stock? This can frequently be a cause for excessive levels of investment.

7. If you offer a number of different models of the same product, could you just stock the basic model and then add the distinguishing features such as color, etc. as orders are received?

8. Does each stage of the production process carry its own “safety stock” to avoid getting caught short? Can they be eliminated, combined or reduced?

9. If you are producing to customer orders (make to order), are you buying needed materials too far in advance of when actual production will take place? Are customer requests for delays building up inventory levels?

10. Are inventory levels reduced sufficiently in advance of changes in design and other engineering revisions to avoid making significant amounts of obsolete stock?

11. Evaluate inventory buildup to cover seasonal sales and determine if these levels are justified.

12. Look carefully at the feasibility of reducing the number and variety of products sold. Also, evaluate the production of low-volume items on a “make to order” basis only.




13. Should smaller quantities be ordered now for some items even at the risk of some additional “emergency” purchases?

14. Conduct an analysis to determine whether the savings from carrying lower inventories would more than justify a higher percentage of stock outs.

15. To reduce material handling costs, reorganize your inventory according to space requirements per SKU (stock keeping unit), frequency of orders, and proximity to assembly areas or traffic centers.

16. Reduce large inventories by establishing a “job shop” to handle special orders. If an order is marked “rush” and cannot be filled from inventory immediately, direct it to the “job shop” where special operators and equipment can quickly fill the order.

17. Are valuable parts and material kept in secure and protected areas? Are the inventories of these items checked on a frequent basis?




Maintenance 1. Develop a system for inspecting and servicing machines and equipment at regularly

scheduled intervals to prevent untimely breakdowns and costly repair jobs. 2. Have requests for repair and maintenance work channeled through a single supervisor so

that he can log the various jobs, schedule the work and assign maintenance personnel. 3. Are interruptions to production avoided by scheduling regular maintenance during slack

periods? Major overhauls can be performed during weekends or on vacation shutdowns. 4. Make sure written work orders are issued for all maintenance jobs indicating what is to

be done, where and when it is to be done. This will help people from wasting time by checking back on verbal orders. It also provides for a vehicle to properly account for all the maintenance work and cost.

5. Make sure that you are utilizing the latest techniques and equipment for identifying potential trouble spots before breakdowns occur.

6. Analyze your maintenance requirements to determine whether it is cheaper to do it yourself or farm it out to specialists.

7. Do you regularly call in service specialists from the manufacturers of your equipment to check on the performance of your machines?

8. Could some maintenance tasks be assigned to machine operators? 9. Analyze your maintenance costs to determine if there are recurring items that need to be

investigated. 10. Utilize maintenance carts containing tools, spare parts, and other supplies to reduce

unnecessary time in completing the maintenance jobs. Consider carrying spare parts for critical equipment in your storeroom to minimize downtime.

11. Review the maintenance record for each critical piece of equipment. Make a determination as to which pieces of equipment should be replaced and where more frequent maintenance on other machines is necessary.

12. Determine if manufacturer’s recommendations for maintenance is carefully followed. 13. Evaluate your supply of repair parts for critical machines. Do you have too many or not

enough? Could you save by buying good off-brand parts rather than from the manufacturer?

14. Consider establishing time standards for maintenance jobs to help maintenance personnel improve their efficiency.

15. Taking photographs of new wiring, piping, air lines, etc. before walls are closed and finished can save hours of time when trouble occurs and you need to pin down an exact location.

16. Reduce machine downtime by scheduling the facility’s critical machines (those that would cause the greatest production loss in the event of a breakdown) for daily




inspections by foreman or supervisors as this approach to preventive maintenance can significantly reduce plant downtime.




Receiving and Warehousing 1. Consider classifying your vendors by the average quality of their shipments in an effort to

eliminate duplicate inspections of those vendors who are reliable and can be eliminated. 2. Are defective materials being reworked in your plant rather than being charged back to

suppliers? Consider cutting back on these costs by implementing a stricter policy on charge-backs. Attempt to work with your vendors to improve the quality of their inspection and quality efforts.

3. Do your suppliers ship in the right size and shape of containers for your storage and handling facilities?

4. Can you improve on your stock location system to avoid wasting time hunting for material?

5. Consider the feasibility of having incoming cartons stamped with the stock location of the material.

6. Would you save time locating stock if incoming shipments were marked with the part number?

7. Is the warehouse layout efficient relative to the use of space and accessibility of materials?

8. Would movable shelves provide the warehouse personnel with greater flexibility of space during peak periods?

9. Consider space saving possibilities by utilizing round, rotating storage bins for small parts.

10. Could small parts be packaged and stored in quantities commonly used by production people? These containers could be included with a Kan Ban (parts containers) system. Also consider having materials used for routine repair jobs to be packaged in kit form.

11. Consider utilization of portable storage facilities to provide additional storage space to cover peak and short-term needs.

12. If you need additional storage space, consider moving obsolescent, excess, and damaged inventory into out of the way locations. Better yet, dispose of these items if practical.

13. Make more efficient use of overhead space by adding higher racks and by stacking pallets up to three or four high.

14. Consider utilizing steel storage instead of stationary bins. These can be move with a lift truck and provide flexibility in rearranging the storage layout to meet changing conditions and demands.

15. Design and build bins, racks, and carts to comply and fit the types of materials you handle repeatedly and with the equipment being used.

16. Stack material diagonally to increase utilization of storage space. Lift trucks can operate in narrower aisles if they only have to turn 45 degrees.




17. Study and analyze the traffic movement in storage areas to determine the shortest and most efficient routes.

18. Locate storage areas as close as possible to production areas being served. Also, creating small branch storage areas for work-in-process parts can save a considerable amount of travel distance with significant savings. This should be a component of the basic work flow through the facility.

19. Improve stores housekeeping to achieve easier movement of materials and goods. This should be a component of a lean 5S system. Make sure that floors are in good shape and kept clean and clear of waste. Improve the lighting in storage areas to allow faster movement of material and easier reading and identification of part numbers and job ticket instructions. Clearly identify storage areas in sections to minimize confusion and lost time. Display the floor and ceiling load limits.

20. Improve the record of what is stored in each storage area, so that parts and products can be easily and quickly located.

21. Make sure that valuable incoming materials are kept in protected areas. 22. Are over shipments reported promptly to purchasing and segregated for possible return to

vendors?




Quality Control 1. The cost of maintaining quality products is much higher than most people think. The cost

of quality includes testing, inspection, scrap, rework, and warranty fulfillment – and can run as high as 5% to 10% of sales. Analyze your quality costs to see if a more intensified program of quality control would pay off.

2. Consider implementing a systematic quality control program capable of preventing as well as catching errors. This would help to cut costs and reduce the number of defective products shipped to customers.

3. If you do have a quality control program – is it losing its effectiveness? Try to inject fresh ideas and incentives to maintain and established a reputation for high quality products and service as a way to improve profitability.

4. Systematically search out the root causes of rejects and or failures. Realize that a low reject or failure rate may still involve a lot of scrap or rework dollars, especially if rejects occur at the end of the process.

5. Have you checked the possibility of using statistical quality control techniques to replace 100% inspection, both on the production line and for incoming materials?

6. Consider adopting the sampling techniques developed by the Department of Defense which are called “Acceptable Quality Levels.”

7. Quality problems are usually associated with a small number of production steps. Have you isolated these steps?

8. Are suppliers of materials, parts and sub-assemblies selected on the basis of their ability to ensure the quality level specified? Do you conduct supplier audits to keep them honest as well as help them with potential cost reduction opportunities?

9. Do you analyze the quality defects of competitors’ products so they are avoided in your products?

10. Review manufacturing tolerances to determine if they are unnecessarily tight in view of the current design and end use of the end product.

11. Try out fresh approaches to dramatize the importance of quality to production people. Examples might include displaying competitors’ products.

12. Study the possibility of combining in-process inspection with production operations? 13. Simplify inspection jobs by standardizing methods and techniques for inspection. 14. Consider putting inspectors on incentive to improve quality and increase output. 15. Have machine operators been trained to determine when their equipment is not achieving

the required levels of quality? 16. Sloppy housekeeping in production areas is usually an indication of questionable quality. 17. Are design engineers kept fully informed of reject rates and other quality problems? An

example might be tight tolerances that would increase labor rates.




18. Is incoming material inspected and is the inspection process adequate? Could incoming inspection be reduced by working with your vendors?

19. Consider the need to establish quality control procedures earlier in the production process.

20. Have you asked your key vendors for assistance in setting up or improving your quality control procedures? Many suppliers have experts on their staff and are willing to assist their customers.




Packing 1. Conduct a cost breakdown of all packing materials. Show each type, size, grade, etc.

separately. For each item show the annual cost, normal order quantity, and annual usage. Important incidental benefits can be seen very quickly as this process frequently reveals fundamental problems and inefficiencies.

2. Are cartons or other containers being acquired in standardized sizes to minimize unnecessary costs and usage?

3. What would be the effect if special-order containers were dropped and replaced with packing methods utilizing standard items?

4. Reevaluate the design of all shipping containers to take advantage of the latest packing methods and materials.

5. Invite packaging manufacturers to evaluate and make improvements in your packing techniques and materials.

6. Consider if freight savings would overcome the higher unit cost of lighter weight containers.

7. Tighten control over the use of minor supplies such as shrink wrap, gummed tape, wrapping paper, staples, and other materials.

8. Could some packing material be purchased as an integral component of the container? Examples include built-in partitions, self-sealing flaps, and special linings.

9. If your orders for boxes are relatively small, ask your supplier if he could include your order with another customer in the same production run to provide a volume price break.

10. Consider if you are over-packing. If you have had no damage complaints, conduct a field test with a lighter carton.

11. Consider if adopting a bulk shipping container replacing several individual cartons would be feasible.

12. Embed small parts in shrink wrapped plastic so a number of items can be handled as one unit.

13. Design boxes that enable counting of small parts without special attention from packers. 14. Simplify inner packing of expensive, easily damaged products by utilizing specially

designed shock-absorbers. 15. Buy cartons with self-sealing flaps. 16. Use cartons with a non-skid finish. 17. Ship heavy products in two containers. 18. Use boxes with built-in pallets for fork-truck handling. 19. Choose a break-apart box for more efficient warehouse stacking. 20. Utilize plastic skin and shrink wrap instead of bulky stuffing to protect breakable objects. 21. Develop form-fitting containers. 22. Switch from rigid containers to bags.




23. Use corrugated boxes to replace wooden crates and boxes. In addition to saving from lighter weight, space can be saved because these boxes can be stored knocked down.

24. Ship items in shrink-wrapped bundles instead of cartons. 25. Use salvaged carton material for small packages. 26. Specify re-sawed lumber for wooden boxes if a smooth outside surface isn’t important.




Shipping 1. Product classification plus route and carrier selection are typically areas that offer

opportunities for major savings. The internet will provide logistics companies and information that will indicate the lowest classification for each product and the cheapest method of shipment to destinations from where you are located.

2. Lower product classification by packing in the manner prescribed by the carrier will help you achieve lower freight costs.

3. Avoid mixed shipments of products with different classifications. The highest rated items will normally determine the entire charge in LTL (less than truckload) shipment.

4. Investigate potential savings by using a freight forwarder for both surface and air shipments.

5. Consider utilizing a traffic and freight management consultant to study your shipping procedures and audit transportation bills.

6. Make sure that you investigate all types of carriers when deciding on the method of shipment including rail, truck, air, and water.

7. If you have shipping damage issues, consider carrying insurance above and beyond that supplied by the carrier.

8. Are freight bills regularly audited for over-charges? 9. Do you pursue claims for damage promptly? 10. Could your dealer, distributor, or customer perform final assembly jobs that would allow

you to take a lower rate on shipments? 11. Have you investigated containerization when shipping by air? It could provide substantial

savings. 12. Rates charged by freight forwarders can vary significantly, so shopping around could

really pay off. 13. Are you taking advantage of free weight allowances? Many suppliers allow their

customers free weight allowances for pallets and containers. Make sure the weight of these pallets and containers is excluded from your overall freight weight.

14. Minimize demurrage charges by trying to assign sufficient manpower and equipment for expeditious loading and unloading by scheduling an even flow of incoming materials and by not ordering carrier equipment too far in advance.

15. If you operate your own trucks: a. Boost the time trucks are available for use versus the dead time needed for repairs

or maintenance. b. Reduce the idle time waiting for use. c. Increase pay load utilization by maximizing the load miles verses deadheading

back on trips. d. Work with freight carriers to pick up backhaul loads when scheduling shipments.




16. If you own your trucks, investigate the possible savings through leasing. 17. Consider if faster means of transportation (air freight) would more than pay back in lower

warehousing and inventory costs. 18. Do not invite theft of your goods while in transit by unnecessarily advertising your

product on shipping cartons. 19. Can you reuse your suppliers’ shipping cartons? 20. Promptly file and follow up all claims for shipping damage. Photograph shipments to

expedite claims. 21. Investigate bank freight-payment plans. 22. Watch your freight allowances such as rate rules, classification, weight breaks and such

because they can change quickly. 23. Watch fuel surcharges carefully to make sure they are in line. 24. Establish proper safeguards so that unauthorized material is not placed on trucks leaving

your facility. This is one of the most common methods of stealing desirable material with or without collusion of an inside employee.

25. Depending on your volume consider hiring a traffic management service to handle your shipping instead of maintaining a fully staffed traffic department to handle relatively small volumes. They can cut transportation costs and perform the necessary research to uncover potential savings in your current shipping operation.




Other Areas Checklist Outgoing Mail

1. Provide mailing instructions as to where and when mail should be sent first class. 2. Consider reducing mailroom headcount by hiring part-time personnel to cover heavier

demand. 3. Sample outgoing mail for incorrect postage. 4. Help shipping clerks by indicating the parcel post zone in the upper right-hand corner of

packages. 5. If you mail a large number of packages, self-insurance or commercial insurance might be

cheaper than postal insurance for each individual package. 6. If a package weighs less than 16 ounces, it generally should qualify for a third-class

single rate rather than the more expensive one pound minimum parcel rates. Sometimes it is worth dividing large packages into several smaller packages to qualify for the lower rate.

7. Check to see if you can qualify for special fourth-class rates? If you are shipping books special rates apply.

8. Minimize unnecessary parcel postal markings, etc. which waste time and printing costs. 9. If you regularly receive parcels with postage due from suppliers or others, weigh the

packages to make sure you are not being overcharged. 10. Make sure your stationery is color-coded for special handling, delivery, and sorting. 11. Make sure that you are getting your fair share of free mail supplies from the post office

such as stickers, labels, mailers, and wall charts with postage rates. 12. Is daily mail going to the same address collected and mailed together in a bulk envelope

with a preprinted label or address? This procedure saves on postage, stationery costs, and time to address packages.

13. Avoid special delivery to nearby cities and avoid using airmail on Friday for Monday delivery.

14. Monitor personal mailing using company postage and be sure that your policy is clearly communicated to employees to avoid this situation.

15. You may be able to reclaim unused metered postage when inadvertent excessive postage is applied.

16. Make sure you have an accurate, quick-stopping, postage-computing parcel scale. It can pay off if it is used on a consistent basis.




Telephone

1. Audit telephone equipment, services and bills to avoid overcharges and billing errors. 2. Limit or control access to long-distance service. 3. Carefully evaluate the need for employees to have company cell phones. Ask the question

regarding the necessity of all phones and the level of service plans associated with the cell phone service.

4. Monitor telephone bills to pinpoint the individuals who are using the telephone extensively.

5. Check out new voice over internet protocol telephone service. Office Equipment

1. Copy machines are extensively abused and result in excessive cost of supplies including toner, paper, and click charges. Consider minimizing such equipment and employing paperless workflow techniques.

2. In many cases copy machines are over configured with features that aren’t required for most situations. Less costly machines situated in convenient areas can actually be very effective since copying costs will be lower and employees will not waste time traveling distances to centralized locations for copies.

3. Using the fax machine on your PC or computer monitor is another way to minimize paper and copying costs.

4. There are a number of web based accounting and analysis available that offer very unique and state of the art applications which can be accessed without making an investment in additional hardware and software.

5. Consider using used or reconditioned office equipment and furniture to save and conserve cash flow.

6. Service and maintenance contracts can be costly. Evaluate these to determine the best options for your business.

7. One suggestion relative to service on computers is to pay for a service contract especially if you don’t have an IT function. It can save a lot of downtime and aggravation

8. When designing office areas it frequently makes sense to use partitions rather than create separate offices because they offer more flexibility and are less costly.

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