Hidden losses: they exist, but how to spot them?

Every company could probably squeeze more revenue out of its business model, and so too could it shave off some of its costs. The questions are always the same: where and how?
And once you find them, how do you exploit that new knowledge to plug those financial leaks? 

A single blog that answers those questions would be worth quite a bit, and let’s not pretend the next 800-odd words are likely to be some panacea for all who read it, but what you will get are hints as to how to spot potential losses: the usual suspects, if you will. And all of it grounded in real-life experience of the industries Shepherd knows well: asset-heavy industries. 

In a nutshell, what follows is a catalogue of likely familiar risks such companies may face and recognise, as well as providing perfect examples of the issues CMMS (computerised maintenance management system) and EAM (Enterprise Asset Management) resolve. What this blog is not is an attempt to teach company owners how to run their gig. Simply that if you have never felt the need to explore CMMS and EAM options, this may be a nice reminder why you should, even if you don’t buy from Shepherd, or from anyone at all.

What is loss?

First, let’s agree on what a loss is, and for the purposes of this blog, it is an expense that does not then pay for itself at all, or does so to a smaller degree than possible. Losses often present themselves as unmanaged expenditure. It stands to reason that buying something you don’t need, or when you don’t need it, is a loss. It’s money gone that could have been money retained or invested.

Losses can equally be contractual penalties that you could have avoided, team members you don’t need, planning and procurement that is inefficient, and a lack of information about which customers or assets are least profitable. If only there were a way to easily track these metrics and processes, that could do the heavy-lifting of analysis and optimisation for you. If only…

Downtime, missed targets, and excess buying

Let’s say that, because you have unexpected downtime, you miss a production target or deadline. That’s a loss. A loss because you didn’t invoice for as much as you might have done. A loss if there are delivery penalties that apply. It’s a loss if the customer loses patience or confidence and orders less the next time, if at all. 

Another scenario is that, because the risks of running out of a part or material are so great, a company orders an excess, safe in the knowledge that there is always 35% greater stock in the warehouse than is needed based on average monthly use. Even if the item is a humble 4 mm cable tie, that is still money that can’t go elsewhere. Now imagine that it is a specialist lubricant that costs triple figures per litre. Once again, that money is a loss because, even all those ties or litres do eventually get used, there’s always far more in stock than needed, and all because of uncertainty, not demand.

Downtime could mean a belt broke, and the part it was turning stops going around. That might be an inconvenience, but if the stoppage means a coolant pump no longer does its job, that’s a problem. Maybe a sensor fails, and pressure rises. That might mean a gasket goes, perhaps explosively. Downtime might not just mean missing the day’s production target. It could mean catastrophic failure and injury: outcomes no CEO or COO willfully ignores.

Even before it reaches the crisis stage, if it is unplanned downtime, there’s a greater chance that the parts needed will not be in stock, meaning expedited parts orders to get something in as soon as possible. Every time this solution is needed is another time that delivery costs were higher than needed, and potentially the unit price was too, due to order size terms. Whichever applies, surely a system that cuts those chances is worth consideration.

Inefficiency in the field

Similarly, your roving team of service personnel and technicians, in their fleet of company vehicles full of useful parts. Only, you don’t know who’s got what. All you know is what your procurement manager has told you: that warehouse stocks are low. Meanwhile, that fleet goes from job to job, sticking to roads they know, not the shortest route, or better still, the quickest. 

Losses, losses, losses. None of them is a threat to the company’s survival. All of them are a sum you can absorb, but why absorb anything if the money those losses represent was spent on something that could help prevent them? No surprises, then, that my earlier wish for a way to spot these losses easily was ironic, and that such a solution exists. 

Expose the leaks

If your company runs on assets, their rental or their maintenance, a well-suited EAM solution can make huge differences to how much money is spent unnecessarily, and how profitable you are, even to the point of making a company set for sale, one that actually remains in current ownership, and sees a boost in profitability. Just from adopting a management system. 

Obviously, Shepherd offers such a product. And if you run NetSuite, Shepherd unabashedly believes it is your best bet, but even if this blog simply gets you to take a careful, objective look at how things are running one lunchtime, it will have been well-worth writing. If you have any questions as a result of reading this, and think we can help, let us know.