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Over the past few weeks we discussed a series of Best Business Practices that will save a small food distributor ($1.5 million in revenue) over $21,000 in costs of correcting incorrect orders. To put it another way we just took 8.4% of the company's total revenue and moved it from expense to profit. As impressive as this may be it is important to realize that savings gained from controlling these types of costs scale almost directly with line items ordered and therefore revenue.

Understand that most companies cannot reach the $15 million mark without using some of the practices we discussed. Sales revenue simply cannot drag the high overhead along behind it as each dollar sold becomes less and less profitable due to increased errors from increased workload. Many companies that are working on a "survival" based strategy (as discussed in article 13) will have made just enough improvements to "get by" at the current level of business. Unfortunately by skipping steps these survival based strategies frequently leave a large amount of profit lying on the table and often fail to prepare for the growth of the company. Our Thinking Inside the Box has grown a bit this week to fit the larger figures we're discussing.

Thinking Inside a Bigger Box

If a company with $15 million dollars in revenue was using a manual system it would spend as much as $1.09 million (7.3% of total revenue) correcting mistakes.

By following the Best Business Practices we reviewed this company would ad $794,000 (5% of revenue) in cost control savings to the bottom line.

Why did last week's thinking inside the box still say "Saved So Far"?

Last week was the last step of our cost control program, but any adoption of best business practices must be done in steps manageable by the company. You will remember we decided to hold off on several pieces of technology (bar coding, wireless warehousing, voice or light picking) because our sample company wasn't ready for that step today, or in the near future.. In a real world situation we would be evaluating these programs every few months looking for areas to continue improvement adding and refining the processes, tools, and skilled personnel to achieve our goals.

On top of the direct savings the best business practices we have outlined provided followed the principles of streamlined and standardized processing. This will benefit a company by increasing throughout capability without increasing staff. These "incidental" efficiency improvements provide room for growth and further refinement.

Next week we plan to dive a bit deeper into our discussion of Best Business Practices, looking at what they are, where they come from, and how can you use them to not only to control your costs but as a method to grow your business and create a competitive advantage for your company.