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Is Rework Giving You Headaches? Here are Two Creative Solutions

(That you can Implement in Just 5 Minutes)

Most companies spend far too much time on rework.

By rework, I mean redoing, correcting, or rebuilding a final product or service that didn’t turn out quite right.

Rework happens when mistakes are made in the process of doing work, critical information gets lost along the way, and when plans were never right from the beginning.

No matter how you slice it, too much rework is bad for business.

Whenever you have to commit to reworking a product or service, time is wasted and profit is lost. If your business has to perform rework fairly often, it’s essential to identify the root cause of the slip-ups.

There are many signs your company has a rework problem:

  • Employees spend a lot of time making corrections, especially at the tail end of projects or work that has been completed
  • Employees often have to work overtime
  • Profits frequently come in lower than expected
  • You feel that the time you spend on rework is above what’s normal for your industry

If you’re reading this article, there’s a good chance you do have a problem with rework. After all, it’s such a common problem. But the good news is it’s easy to fix.

How to prevent rework

The secret is to be more proactive.

Stop putting out fires when someone makes a mistake and start sharing information and decision-making responsibilities (more on this later).

I believe it’s important to shift your business mindset to a focus on finding ways to increase throughput (the rate at which you generate revenue).

You don’t have to go for homeruns. Instead, strive for gradual, continuous improvement. That’s the best way to create long-term, lasting change.

But it’s not enough to seek and act on opportunities: you also have to start tracking your performance so you can learn what works, and what doesn’t.

Tracking lead and lag measures

You need to start tracking, monitoring, and scoring your most important business indicators.

Start by finding your ‘critical numbers’ for both lead and lag measures. A critical number is the number you need to hit for your business to succeed.

For example, it might be the number of units you need to produce to meet demand, or the number of sales calls you need to make to hit a sales target. Note that these examples are both lead indicators, which are more actionable than lag indicators.

“Using only lagging indicators in your business is very much like trying to drive your car using only the rearview or side mirrors. It’s great for backing out of the driveway. Moving forward is difficult if not impossible.”
— Douglas Wick, founder of Positioning Systems

Lag measures represent actual end results. They’re useful for evaluating performance but not for day-to-day decisions, because you can’t control the end result. You can, however, control inputs. And lead measures are your inputs.

Think of it this way: If you want to lose weight, you need to track your caloric intake and the number of calories you’re burning throughout the day. These are both lead measures. You can weigh yourself (lag measure) to check your performance, but the only way to affect your weight is to control the lead measures.

Use Throughput Accounting to focus on what you can actually control.

An introduction to Throughput Accounting (TA)

TA is a simplified management accounting approach that turns Cost Accounting (CA) on its head: while CA focuses on managing costs (reducing expenses to make a profit), TA focuses on boosting sales, faster and faster, while keeping costs as steady as possible.

You need to answer three key questions to use TA in your business:

  1. How much cash is generated by your business?
  2. How much cash is invested by your business?
  3. How much cash is available to be spent to operate your business?

And to answer these questions, you need to track three lead measures:

  • Throughput (T): The rate at which your business generates revenue through sales.
  • Investment/Inventory (I): The cash your business invests in items you plan to sell (note: does not include labor expenses).
  • Operating Expenses (OE): The cash your business spends to turn Investment (Inventory) into Throughput (note: includes all labor expenses, which is a major departure from the Cost Accounting approach).

Combined in the following equation, these three lead metrics yield your Throughput Net Profit:

Throughput Net Profit = Throughput – Operating Expenses –
Investment/Inventory Expenses

T must exceed the sum of I and OE (the break-even point) in order to turn a profit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

It’s important to note that using Throughput Accounting (TA), which focuses on lead metrics, doesn’t mean ignoring Cost Accounting (CA), which focuses on lag metrics. Your critical lead metrics used in TA influence lag metrics used in CA based on the following relationship:

 

Throughput Accounting (TA) helps you make the right decisions by looking at the rate of money flowing in and out of your business.

So now that we know how to calculate our throughput, how can we increase it? One way is to use the Throughput Improvement Plan.

Boost your revenue generation rate with the Throughput Improvement Plan (TIP)

Every business has constraints that govern the rate of money generated. You need to remove these constraints to realize your business’s true profit potential.

The TIP helps you select your key constraints and identify the “interferences” that slow down or stop the flow of work. It’s a simple 7-step process that will help you communicate to employees the role they need to play to increase the rate of work at the key constraints. It promotes unity within your business to increase operational effectiveness.

As a result of implementing the TIP, you’ll see dramatic improvements to product/service quality and on-time delivery.

DOWNLOAD: The 5-Minute Game Plan...

Click here to download my free guide, “The 5-Minute Game Plan for Improving Communication, Eliminating Rework, and Following Through on Great Ideas” – Even if You Only Have 5 Minutes to Spare, which includes the 5W-2H worksheet.

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