Small items can have a big impact

I’m convinced that opportunities for capable machine shops will be abundant throughout 2014 and beyond. Taking advantage of those opportunities should help maintain a healthy revenue stream, but ensuring profitability and income stability requires careful management by shop owners of things large and small. Major expenses, such as raw materials, new equipment and maintenance contracts, are at the forefront, but overlooking the small items can be the difference between profit and loss.

If a short-term financial period reflects a small loss, that by itself isn’t unusual. More critical is a long-term financial result that shows even a small loss, because it can create a negative view of your operation. Effective management of otherwise ignored small items, including waste, could turn that negative into a positive and produce a better business outlook.

While better management of small items may only alter a shop’s financial result by a few percentage points, say, from a 2 percent loss to a 3 percent profit, the positive result can make a big difference. It’s much easier to grow your shop when your credit is solid and your shop is profitable—even slightly.

The following are some examples of what to watch out for. Carefully monitor employee expense accounts. Watch every item purchased for “supplies” to confirm employees aren’t being wasteful or, perhaps, sticky fingered. Also, verify all machine repairs, which can be erroneously diagnosed by technicians at job shops and even at machine tool vendors. In addition, carefully review contracts to ensure you’re not signing documents that contain hidden fees or unnecessary costs that could potentially be removed if aggressively negotiated.

Problem incidents like these tend to grow unabated unless they are kept in check by management. This is especially true at small shops where owners and managers are engrossed in operational activities and wear many hats.

Even at larger shops, the operational complexity, combined with wasteful activities, can equate to leaky money pits that siphon off thousands of dollars or more.

Another contributing factor is employees tasked with monitoring such activities who become complacent about their duties. Some employees become less observant when they are not kept accountable by their managers. A manufacturing operation has many different types of employees, from administrative staff to engineers to quality personnel to machinists. Within that broad mix of personalities and skills comes the inevitable entrenched workers who get comfortable, lose their passion and provide only minimal effort. Small things can easily slip through the cracks.

How can you keep a handle on all matters, small and large? Plenty of ideas and techniques exist, but establishing a chain of command and assigning clear levels of accountability are musts. Anchoring income potential and benefits to the successful management of these functions is also important.

At the end of the year, financial results may only show a small change, but they present a critical snapshot of your operation and are often a direct reflection of your management skill. The results can determine your potential for future growth and success.

The all-consuming nature of big matters can distract you from equally important small ones. Establish a system, hire the right people to execute your plan and make time to actually own and manage all aspects of anoperation. Remember, a small improvement can put you over the top. CTE