Common mistakes cost more than you think
There's a high cost to being too busy to get work done
by Randy Westlund, Founder & CEO
I was consulting for the owners of a company recently. They'd worked hard last year. They did a record number of jobs. They even had to hire two installers and a welder to get it all done. But at the end of the year, they looked at the books and saw there was hardly any money left. The shop had been so busy! What happened? Where did it all go?
When I was in this shop, I saw handwritten quotes, handwritten work orders, carbon copy paper and filing cabinets stuffed with records of every job from the past 30 years. I saw people looking for lost paperwork. People interrupting each other to ask questions about job status or tasks that still needed to be done. People who looked busy but had precious little time to sit down and focus. They were all too busy to get work done.
I have great admiration for our industry, yet the situation above is all too common. We're mostly small businesses, many of which are handed down through generations. Craftsmanship is still valued; we take pride in our work. But we also have problems. Businesses, like everything else, must change and adapt to survive.
But we haven't. We've all fallen behind.Mistakes are common, but changing workflow and management practices can minimize them and increase productivity.
The mistakes we make
It's not so much our equipment that's at issue, but our business practices and workflow. How many times do you write down the installation address for a job? Maybe it's once on a sticky note when the customer calls. Once on the salesperson's appointment sheet. Once on the quote form. Once on the work order. Once on the whiteboard that's never up-to-date. Once on the installation schedule. Once on the invoice. Seven times? When we write the same thing seven times, we're just asking for mistakes.
In the shop
- Your sewer mixes up 36" with 3' 6" and cuts a whole panel too short.
- You're doing a re-cover, but someone cut the fabric off the wrong frames, so now you're doing more re-covers.
On the road
- Your installation crew goes to Birch Street instead of Birch Avenue and spends 40 minutes driving around lost.
- You finish installing one of your best-looking jobs and the customer walks outside and says, "That's not the color I ordered." It turns out the customer had changed the fabric color two days after signing the quote, but one of the copies of the work order didn't get updated.
We all know mistakes are bad for our bottom line and our reputation, but it's the cost of doing business. Mistakes like these will happen—you deal with them and move on. There's nothing else you can do.
Or is there?
Mistakes happen, but we can do better. First, let's think about how much each mistake costs you, then look at some changes that can help reduce the cost.
What do mistakes cost?
What does it cost when you have to remake a product due to a mistake? Labor cost is the big one, because you have to spend more hours on the job. There are also materials costs from whatever you had to discard. These two account for a lot, but there's more to it.
Overhead cost is easy to forget, but it's not just labor hours that you're spending to remake a product, it's shop hours. Running your shop costs more than what employees are paid, even if you remembered to add in FICA taxes, unemployment and worker's comp. The cost of keeping your shop running includes utilities, licenses and even the salaries of nonproducing employees like sales reps, managers and office staff. Your true cost of a work hour includes a share of all these expenses too.
Opportunity cost is invisible. It's money you never see, which makes it difficult to keep in mind (like the income you don't see because of income tax withholding). When you spend extra time remaking a product, there's some other job that you would have been able to do but that you now don't have time for. So you lose the profit you would have made on that other job too; your mistake cost you an opportunity for future profit.
Reputation cost is easy to see, but hard to quantify. The customer might give you a one-star review, say bad things about you to neighbors, and give future work to your competitors. Your reputation is in many ways your most valuable asset because it's the only one that your competitors can't copy. In our service-oriented market your reputation is what sets you apart, for better or for worse.
Morale cost may be the most insidious of all, because it actually increases the chance of making more mistakes on future jobs. Employee morale affects everything your company does in ways that are often invisible. Low morale could be the reason one of your installers is always late for work, the reason your welder didn't bother to double-check that measurement or the reason your sales rep didn't close that deal today.
So how much does a mistake actually cost you? Make your best estimate, adding in everything you can think of. Then double it. Then double it again. Now you're in the right ballpark. You may need to do a dozen perfect jobs just to break even after that mistake from last week.
Moving in the right direction
While we can never be perfect, we should recognize that most of the mistakes we make are a result of flaws in our business processes. Writing the installation address seven different times, for example, is a flawed process because it adds in six unnecessary opportunities to make a mistake.
With the right processes in place for sales, production and installation, we can set ourselves up for success instead of failure. We all know someone who complains that successful people are just lucky and it isn't fair. But successful people know that 9/10ths of success is doing the hard work to put yourself in a position where success is likely to happen.
So how can you set your company up for success? Here are some ideas:
- Have one place where job status information lives. It should be easy for everyone to access and update. Update it religiously or don't bother at all; out-of-date information causes more mistakes.
- Use printed work orders and quotes to eliminate sloppy handwriting. It's even better if you have a system that can generate these for you.
- Reduce or eliminate double-data entry; don't write the installation address seven times. Use software that ties everything together.
- Have a weekly production meeting where you make sure job status is updated and deadlines are still realistic. Talk to anyone who neglected to update job status when they finished a task.
- Send a customer satisfaction survey after every job and read the responses to the whole team. The more you can connect your employees to the real people that you're serving, the more they'll care.
- Keep important information backed up. After a few years of use, about 12 percent of hard drives will die each year. Your computer could die at any moment; don't let it take important information and records with it.
- Have access to your job and customer information remotely. You shouldn't have to get back to the shop before you can make a decision or answer a question.
- Consider profit-sharing or employee stock programs like an employee stock ownership plan (ESOP). When employees have good reasons to care about the health of the company, morale and the quality of work will go up.
I founded Awning Tracker to provide a tool to implement these solutions, but there are other systems that can help too. What's important is that you find a system that works for your company, commit to implementing it and get everyone on board. I've worked with the owners of many companies who know they need to make a change to their workflow, but never make time to actually change anything. They feel like they're too busy putting out fires to figure out how to prevent the flames from starting. It's easy to get stuck that way.
Making changes can seem daunting, but any marginal improvement you make that can reduce mistakes and increase your productivity translates entirely into profit. A wise person once told me, "Your steps don't have to be big; they just have to take you in the right direction."
This article originally appeared in Specialty Fabrics Review, July 1, 2019.