5/1/2003
Shop Financials
Gap Analysis Finds Unrecognized Business Inefficiencies
By Darryl Padgett
"Gap analysis" is a unique process geared toward finding inefficient day-to-day routines or uncovering those that create inefficiencies. Gap analysis measures every minute throughout the day for every person in the company, from executive to entry-level, from start of the day to the end of the day. Any minute found that is not geared toward making money or is hindered because of inefficiencies is earmarked for further examination.
This type of analysis captures minutes that can turn into hours, which on an annual basis equals thousands of dollars in wasted time. It identifies events that consume an employee’s day yet are non-productive, shining light on activities that should be redirected, redesigned or eliminated.
Some managers of service companies think they are too busy conducting day-to-day business to conduct a gap analysis on their businesses. Yet the results of performing this internal function can be very profitable and rewarding. Let’s take a look at how gap analysis has helped a business that may be similar to yours.
To give you a little background, our example company has a building that is approximately 20,000 sq.ft. and two stories high. It was chopped up into many sections or rooms and over the years, various additions had been constructed, creating cubicles that had a negative impact on efficiency and workflow.
At the end of each workday it was one certain employee’s responsibility to walk through the entire building, checking windows and doors on both floors to make sure they were all closed and locked. This person also had the responsibility to check for any equipment that needed to be turned off. Although the second floor was used less than the ground floor, the manager still felt it was important to check. Valuable equipment was located there and many windows and doors needed to be checked.
However, in addition to the equipment, doors and windows, a certain room on the second floor had an object near the doorway. This object had actually been there for several years, since before our inspector began working with the company. By habit, the employee simply avoided the object when passing through this particular doorway and continued on with his building inspection.
One day, the employee was asked to give a tour of the company for a prospective client. This client had the potential to generate great revenue for the company, so a good impression was important. The employee, of course, was very familiar with the facility, and gave a great tour and an excellent and exciting description of the type and quality of services the company could provide.
Eventually, the tour came to the object near the doorway. The tour guide, as always, simply ignored the object. The potential client, however, asked what it was and why it was there.
At that point, the object – a cardboard box – was moved. When they eventually opened the box to see what it contained, they found a cash deposit box. As it turned out, approximately four years earlier, at the end of a shift, the company had planned a night of clean up.
Mistakenly, someone had placed a bag with that day’s deposit in the box and the box was taped shut as if it were for storage. And because the company had nothing in place to know that that day’s deposit did not actually take place, it wasn’t uncovered until someone from the outside pointed out an obvious problem.
Alarmingly, the company didn’t even notice the missed deposit. This should be crushing to the owner realizing this slip up happened. The company didn’t reconcile deposits to the bank and cash sales for the day in question either. Unfortunately, this is a common mistake that happens to many business because they are misled as to what is needed for daily check out procedures.
Each person in the company had successfully avoided tripping over the object on the floor for years. The prospective client still questioned why the object was there and why it had not been moved before. The tour guide responded that it had never been an issue before – they were used to stepping over the object. After all, they had been doing business this way for many years and didn’t see any need to change. He said they obviously were doing something right because the company was still in business while much of the competition had gone out of business.
Not exactly the best impression for a potential client, is it? Lack of perspective and scope can be a permanent roadblock for any company. The atmosphere is created by ownership. As an owner you are probably already mentally traveling at 100 miles an hour. However, you must create an atmosphere that allows employees to be creative. If you can achieve this, the company makes more money.
Typically ownership enlists key employees to assist in gap analysis. By identifying activities, procedures and daily routines that crush the efficiency of a company, you have the opportunity to make it better, increasing efficiency, productivity and profits.
Gap analysis results are best when the participants fully understand the process and know what the outcome needs to be. Like so many things, you need to pay attention to the detail. Detail provides the answers and detail is what makes gap analysis work.
It is like a funnel; only so much fluid can flow through the tip. Likewise, in any business we may get massive amounts of information during any given day, but how quickly we disseminate it and identify the bottleneck is what matters.
Just because you have done it your way all these years doesn’t make it right or best. Conversely, it also doesn’t make it wrong or worse. Just remember, because you are still in business today doesn’t mean that you will be in the future.
If you have family or siblings that expect that this will be their business someday, you had better make sure you know how to make the company successful so you can pass it on to them. And you had better make sure that the new owners know what it takes to make profits, too.
Looking for the secret to business success? In a nutshell, "you must know what your costs are to know what you have to sell your products and services for." To stay in business you must make a profit. There is simply no other viable alternative.
Darryl Padgett is a labor and management specialist at the Pluss Corp., Columbia Falls, MT. Pluss Corp. is a provider of software systems to the rebuilding industry.
dpadgett@engine-builder.com